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Dell misses forecasts, shares sink

Largest PC seller in U.S. says sales fell 15% and profit dropped 54%. The company expects improvement in the current quarter on the back of Windows 7.

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By David Goldman, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Shares of Dell Inc. fell sharply following the stock market's close on Thursday, after the PC maker reported drastically lower quarterly profit and sales that badly missed Wall Street's forecasts.

Dell's (DELL, Fortune 500) stock fell $1, or 7%, to $14.87 in after hours trading.

The Round Rock, Texas.-based company said net income for the third quarter, ended Oct. 30, fell 54% to $337 million, or 17 cents per share. Results included charges of 6 cents per share for cost cutting and other one-time expenses.

Without the charges, Dell said it earned 23 cents per share. Analysts polled by Thomson Reuters, who typically exclude one-time items from their estimates, forecasted earnings of 28 cents per share.

Sales fell 15% to $12.9 billion, missing analysts' forecasts of $13.2 billion.

Revenue was mostly lower on sales to large businesses, which tumbled 23% from a year earlier. Small- and medium-sized businesses fell 19%. But consumer sales, including laptops and PCs, actually increased 17% from a year ago. About 80% of Dell's sales come from business customers.

Dell said companies will start to refresh their outdated hardware in the next year and a half, contributing to strong sales growth at the computer maker as the economy begins to improve.

Overall, PC sales plummeted 26%, though the company said that sales will pick up in the current quarter on the back of the holiday season and demand for Microsoft's (MSFT, Fortune 500) new Windows 7 operating system.

"We are seeing improvement in overall underlying IT demand that is continuing into the fourth quarter," said Michael Dell, Dell's chief executive, in a statement. "The launch of Windows 7 is being very well received by small businesses and consumers, and we'll see the benefits of that more fully in our fiscal fourth quarter."

Dell sells more PCs than any other company in the United States. But its market share has slipped recently, as the company has emphasized its bottom line over price cuts. Unlike competitors Hewlett-Packard (HPQ, Fortune 500) and Acer, Dell has been reluctant to slash prices on its PCs to gain share of the market.

As a result, Dell's shipments were flat over the past three months and down 5% over the course of the year.

Analysts had long argued that Dell was too focused on hardware, selling only PCs, laptops and servers. But the company made a bold move in September, buying tech services company Perot Systems for $3.9 billion. That acquisition was completed earlier this month, and Dell said integration of the company is under way.

On a conference call with investors, Michael Dell said the company will continue to look for ways to expand.

"We have significant opportunities to grow horizontally, vertically and in other countries," said Dell. "We're in the midst of a significant transformation in our business."

The company has worked to cut costs in an effort to weather a difficult market for PC sales. Last month, Dell said it was closing a plant in North Carolina, resulting in the loss of more than 900 jobs. Dell said it has reduced total operating expenses by $1.6 billion, nearly half way to its goal of $4 billion by 2011. To top of page

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