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Dell skids on growth fears
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February 12, 1999: 5:17 p.m. ET
Expected sales slowdown may point to broader weakness: analysts
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NEW YORK (CNNfn) - Dell Computer Corp.'s stock tumbled Friday, taking the Nasdaq market with it, on worries that stiff competition would dent sales growth at the world's biggest direct marketer of personal computers.
Dell sank 12 to 89-7/8, a drop of 11.8 percent, and was the most active Nasdaq stock as 66.4 million shares changed hands - more than three times the stock's average daily volume.
Industry analysts said a slowdown at Dell may point to slower PC sales overall, which sent other PC stocks lower, though part of the drop may have been profit-taking.
"Dell represents the bow of the PC boat," said Roger Kay at International Data Corp., a tech research firm. "They're the most efficient, best run company in the business, and if they're having trouble selling computers, that may say something" about PC sales overall.
Dell's drop reverberates on Nasdaq
Dell's decline dragged the Nasdaq index down 83.66 to 2,321.89, its fourth-biggest point loss, after it jumped 96 points Thursday, its biggest one-day gain.
The sell-off in Dell came after industry analyst Dan Niles at BancBoston/Robertson Stephens said sales growth may slow due to stiff competition, even while he expects Dell to meet earnings forecasts for the latest quarter.
Other brokerages also issued cautious comments about Dell (DELL), which is due to report results after the close Tuesday. Analysts expect Dell to earn 31 cents a share for the quarter, according to First Call, vs. net income of $285 million, or 23 cents a share, on sales of $3.7 billion a year earlier.
The drop hurt other PC stocks. Rival direct seller Gateway 2000 (GTW) lost 5-15/16 to 70-1/16, Compaq fell 1-15/16 to 42-7/8 and IBM slid 5-3/8 to 173-1/8, all on the New York Stock Exchange.
Tougher competition for Dell
The expected slowdown at Dell would be almost natural after years of rapid growth, analysts said. But tougher competition from Compaq, the No. 1 PC maker, and IBM (IBM) is contributing, they said.
"Competitors have beefed up their offerings and reset pricing," said IDC's Kay. "These other guys have finally gotten their act together."
Last November, in what amounted to a declaration of war against Dell and Gateway, Compaq began selling directly to customers instead of through retailers or other resellers.
Compaq (CPQ) more recently has started selling computers via the Internet. Dell, with an aggressive Internet presence, is expected to make half its sales on the Web by next year.
Overall, direct sales account for about a third of PC sales worldwide.
BancBoston's Niles said Dell's sales growth will slow to about 40 percent in the latest quarter, but that the stock's price has meant investors were expecting more.
Dell's sales grew 52 percent in the nine months through October, in line with average growth over the prior three years. But earnings growth slowed to 57 percent from an average 85 percent.
Like other analysts, Niles emphasized Dell's strengths, but he also wrote the company is "gaining market share less quickly." 
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