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Dell issues warning on Q3 results

Dell Inc warned investors yesterday that a shift in strategy to focus on higher profit margins would result in lower-than-expected revenue and earnings in the third quarter.

The surprise announcement, made after the close of trading, pushed its shares down more than 4 percent in after-hours trading; shares were up US$0.82, to US$31.88, in regular trading.

Dell said it expected earnings before special items for the quarter ended Sept. 30 to be US$0.39 a share. Most analysts had expected US$0.40.

The company, the world's largest PC vendor, expects a more pronounced decline on the top line. Dell said it would report revenue of about US$13.9 billion, compared with earlier indications that it would bring in US$14.1 billion to US$14.5 billion. It said it would announce earnings on Nov. 10.

Dell, based in Round Rock, Texas, will also take a third-quarter charge of about US$450 million, or about US$0.14 a share, resulting in earnings of US$0.25 a share. About US$300 million of that charge is related to servicing a failed part in its OptiPlex desktop systems. The charge also includes costs related to a realignment of its workforce, factories and product line.

Dell reported fully diluted earnings per share of US$0.33 in the same quarter last year.

Its biggest rival, Hewlett-Packard Co (HP), will announce its earnings on Nov. 17. Analysts expect that HP will report earnings of US$0.46 a share, up from US$0.41 a year ago.

Dell's news comes as the industry reports stronger sales growth. Gartner, the research firm, forecasts that global PC shipments will grow 12.7 percent this year. Unit sales of mobile PCs, including laptops and tablet PCs, are forecast to grow 31 percent this year, Gartner said.

But Gartner also noted that as consumers and businesses are buying at the lower-price end of the market, revenue from PC sales is expected to grow a mere 0.5 percent this year.

"The industry is running to stand still," Charles Smulders, a Gartner analyst, said.

Moreover, as growth in the industry shifts to China and India, where the lowest-price units sell fastest, the gap between revenue growth and sales growth widens.

In the same report, Gartner said that for the first time in seven years, Dell unit sales grew at the market rate, rather than above it.

Dell, which is known for driving down PC prices, has decided to sacrifice market share for profit growth, said Brent Bracelin, senior research analyst at Pacific Crest Securities in Portland, Oregon.

"Dell's been less aggressive in the entry level," he said, noting that the lowest-price Dell system has moved up to US$399 from US$299.

The company announced in September that it would also market a line of desktop and laptop computers as luxury models.

Much of the industry's growth is coming from robust demand in China and India. While Dell is reporting strong growth there, others are reporting even stronger growth. Lenovo Ltd's (聯想) sales, for instance, grew 250 percent worldwide, according to a report by market analysts at IDC.
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