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Dell tanks on slower sales
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February 17, 1999: 2:32 p.m. ET
PC maker meets profit, misses sales forecasts; victim of own success?
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NEW YORK (CNNfn) - It was two views of a tech stock: Michael Dell called his company's results "outstanding" but Dell Computer shares tumbled again Wednesday as investors saw things differently.
Dell stock sank 7-3/4 to 81 after the biggest direct seller of personal computers said net profit grew 49 percent in the fourth quarter, meeting Wall Street forecasts - results that would have been cause for celebration at most computer makers.
But Dell's sales growth slowed to 38 percent from an average 56 percent the prior eight quarters, which was more than enough to spook investors who have paid as much as 70 times estimated earnings to own Dell.
Wednesday's sell-off came after the stock sank almost 12 percent Friday when a few Wall Street analysts warned stiffer competition would dent sales growth at Dell.
The stock's drop has wiped about $35 billion off the stock market value of Round Rock, Texas-based Dell, whose founder, now 33, began selling computers from his college dorm room at age 19.
"By all standards it certainly was an outstanding quarter," Dell told CNNfn, noting earnings per share rose 55 percent and cash flow, or earnings before interest, taxes and depreciation, hit a record $752 million. If it had cut prices more aggressively, "we could have had a little more growth," he said.
He said Dell expected strong sales growth in the current quarter but would not elaborate. PC demand overall should remain strong this year as customers seek out the fastest, most up-to-date machines, he said, citing Intel Corp.'s (INTC) new Pentium chip, the growth of faster "broadband" communications lines and Microsoft's (MSFT) Windows 2000, expected later this year.
"We think it's going to be another very healthy year for the industry and for Dell," he said.
That may be true, but investors have become spoiled by Dell's stellar growth, some analysts said.
"In the near term, this is not good news" for Dell or tech stocks in general, said Robert Doll, money manager at Oppenheimer Funds. Investors routinely expect Dell to beat the Street and when it doesn't, disappointed investors will punish such a richly valued stock, he said.
Still, others said Wall Street, typically, was overreacting.
"It wasn't a bad quarter," said Marc Klee, manager of a global technology fund at John Hancock Mutual Funds, who said some analysts were "overstating" Dell's problems, which include Compaq's (CPQ) moves into direct selling and a rejuvenated PC business at IBM (IBM).
He noted Dell officials told analysts in a Tuesday conference call that the company could have beaten the Street's earnings estimates and matched sales forecasts if it had cut prices more aggressively in the quarter.
"So they blame themselves to a certain extent," he said.
While Dell is probably losing market share, largely because it isn't selling many computers at less than $1,000 - a market where profits can be elusive - he said the company still is the most efficient PC maker.
"Dell is probably a raving buy at this point because the earnings momentum will still be there," he said. "I don't think today or tomorrow is the time, but overall it's still a raving buy." 
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Dell Computer
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