Dell sinks 13% after warning
No. 1 PC maker says earnings will miss even pessimistic forecasts due to aggressive pricing, slowing sales.
NEW YORK (CNNMoney.com) -- Dell, the No. 1 maker of personal computers, warned Friday that it would miss Wall Street forecasts due to aggressive pricing in a slowing commercial market worldwide.
Dell (down $2.99 to $19.11, Charts) stock tumbled 13 percent in heavy trading on Nasdaq, dragging other PC makers with it: rival HP (Charts) sank about 3 percent on the New York Stock Exchange and troubled Gateway (down $0.11 to $1.78, Charts) skidded nearly 6 percent.
Dell announced earnings would be 21 cents to 23 cents a share for the quarter, on sales of about $14 billion. Analysts surveyed by earnings tracker First Call had a consensus EPS forecast of 32 cents, and a range of estimates from 27 to 34 cents.
They also were looking for revenue of $14.2 billion.
Dell is holding its annual shareholder meeting Friday and is due to announce financial results for its second quarter on Aug. 17.
Although the company's statement blamed the aggressive pricing for the earnings miss, the profit shortfall was far greater than the revenue problems.
While Dell "is seeing positive results and will continue to invest to drive a superior customer experience," it said in the statement, its lowered outlook nonetheless reflects "aggressive pricing in a slowing commercial market worldwide."
The company also said it made significant investments in its products and expects to deliver a greatly expanded product line in the second half of the year.
In hopes of retaining customers, Dell has cut prices while scaling back on mail-in rebates after customers complained the process for getting the sale price was too complex. It is also spending $100 million to improve customer service, hiring more than 2,000 sales and support staff.
Concerns likely to spread
Even before Friday's warning, however, some analysts questioned whether Dell can regain its high double-digit percentage growth of the early years of the decade. Shares are down about 50 percent in the past year, with the company posting revenue disappointments in four straight quarters.
"Certainly you have to be surprised by the level of the earnings warning in this case, but it's certainly not a good indication for the economy or for the stock market at least today," said Tim Ghriskey, Chief Investment Officer at Solaris Asset Management.
Concerns about Dell's growth are now only likely to spread. The company's announcement indicated that not only are PC sales to individuals becoming tougher - as it has previously disclosed - but that its business market is also struggling.
"Dell, they are having problems because internally they are in disarray," said Eric Ross, an analyst at ThinkEquity Partner, who has a "sell" rating on the stock. "Dell has done an amazing job of growing, but they don't know how to retrench very well. Inside Dell, they don't know where to turn."
But Ross added that the problems may stretch beyond Dell. "What we are seeing is that enterprise demand is slow in general -- IBM is seeing it, and HP is going to see it as well. This is an endemic problem in the industry."
"Slowing commercial market"
Earlier this week, technology bellwethers Yahoo Inc. (up $0.28 to $25.55, Charts) and Intel Corp. (up $0.19 to $17.29, Charts) delivered disappointing earnings results, triggering some investor concerns about a sector-wide slump.
Google (up $0.48 to $387.60, Charts) and Microsoft (up $0.97 to $23.82, Charts) helped turn sentiment on Thursday, with more upbeat quarterly announcements. Dell's warning could undo some of the optimism provided by Google and Microsoft, analysts said.
"This is another black eye on technology this quarter and we've seen a number of companies report earnings issues during this period," Ghriskey said.
-- from staff and wire reports
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