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Dell Quarterly Results Again Miss Forecasts

Sales fall short a second time in a row. Earnings drop 28%, and the PC maker's prediction for the rest of the year is modest. Analysts say the problem is isolated.

November 11, 2005|Terril Yue Jones | Times Staff Writer

This is not the sort of trend Dell Inc. is used to: The world's largest personal computer maker said Thursday that revenue fell short of expectations for the second quarter in a row and predicted lackluster results for the fourth quarter as well.

Third-quarter profit dropped 28%, dragged down by charges to fix faulty parts and a reluctance by PC buyers to step up to Dell's newer higher-end, higher-margin lines.

Chief Executive Kevin Rollins said he was disappointed.

Round Rock, Texas-based Dell earned $606 million, or 25 cents a share, compared with $846 million, or 33 cents, in the same period last year. Revenue rose 11% to $13.9 billion.

Dell had previously predicted revenue for the quarter ended Oct. 28 of $14.1 billion to $14.5 billion but lowered that forecast this month because of weak sales in the U.S. and England.

Dell also took $442 million in charges in the quarter for repairs of a faulty PC component and for a restructuring that cut about 1,000 jobs.

For the fourth quarter, Rollins said, Dell probably will earn 40 to 42 cents a share on revenue of $14.6 billion to $15 billion. That came in on the low end of predictions of analysts polled by Thomson Financial of 42 cents and revenue of $15 billion.

Dell shares, which gained 19 cents to close at $29.21, fell 29 cents after hours on the outlook.

Although Dell is the market leader in PCs, its troubles don't point to a slowing of the overall technology sector, analysts said.

"I don't think it says a whole lot" about technology spending, said Richard Chu, an analyst with SG Cowan & Co. in Boston. "What we're seeing is some evidence of a tougher consumer PC market."

Corporate markets have been modest for some time, and Chu said he didn't read "any larger caution" into Dell's results.

"Dell has never been a good barometer of the tech industry -- they've done a good job in bad times, growing much faster than the market," said Brent Bracelin, an analyst with Pacific Crest Securities in Portland, Ore.

"On the consumer side, [Dell's stumble] appears more company-specific."

Bracelin said other companies such as Apple Computer Inc. represented "some pretty bright spots" in the broader consumer electronics market.

Consumers snapped up budget-priced PC systems from Dell and rival makers during the third quarter, although Dell was introducing a new line of its premium XPS computers, built to appeal to gaming enthusiasts and selling for as much as $3,450.

Dell is returning to a "more balanced" approach to the market, Rollins said. He noted rumors that Wal-Mart Stores Inc. would sell a $399 laptop computer after Thanksgiving but said Dell already had been selling an identically priced machine for a couple of weeks.

Analysts expect Dell's revenue to reach $55 billion to $56 billion this fiscal year, short of the $60 billion that Rollins has said he expected for this year.

But Rollins stuck to his prediction of Dell's becoming an $80-billion company, though he wouldn't say by when.

"It's not a strategic goal, but we believe we can achieve it," he said. "It's still on our radar."

Dell has about 18% of the world PC market and less than 10% of the printer market, he said. With planned expansions in server computers, data storage, software and services, "there's still plenty of opportunity."

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