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Dell's earnings miss forecasts for second quarter

Charges for faulty components and severance packages for fired workers put a big dent in Dell Inc's third-quarter earnings, disappointing Wall Street for a second straight quarter.

Income fell 28 percent to US$606 million, or US$0.25 per share, compared to US$846 million, or US$0.33 per share, in the same period last year.

The results were hurt mostly by US$442 million in charges, equal to US$0.14 a share, which the company had previously warned about in an Oct. 31 filing.

Extra costs

The bulk of the charge, US$300 million, was to fix bad capacitors on older OptiPlex business desktop PCs. The rest included money to cover severance packages for an undisclosed number of workers whose jobs were eliminated in moves to consolidate the company.

"We are not a company that takes charges," chief executive Kevin Rollins said Thursday after the results were released. "We are not pleased about that."

Operating income was US$754 million, or US$0.39 per share, matching analysts' reduced expectations, according to Thomson Financial.

Dell said sales came in at a company record of US$13.9 billion, up 11 percent from last year's US$12.5 billion but below its previous forecast range of US$14.1 billion to US$14.5 billion. Analysts had forecast US$14.3 billion for the quarter ended Oct. 28.

In the second quarter, Dell missed analysts' earnings targets by US$300 million. Executives blamed it on overly aggressive price cuts and US consumers who stuck with cheaper, low-end desktops and laptops instead of upgrading to more expensive models.

Dell spent the third quarter fine tuning its direct-sales model to provide a better balance of products and prices, Rollins said. He said that combined with a consolidation plan to cut costs and make Dell a leaner, more profitable company, should lead to more sustainable growth.

"We think we can manage those costs back into shape," he said.

Brisk sales

Rollins said he was encouraged by brisk sales of Dell's high-end XPS desktops and laptops unveiled in the third quarter. The pricey machines target tech enthusiasts and video-game fans.

Rollins acknowledged that Dell, in response to customer demand, had begun selling stand-alone processors from Advanced Micro Devices, a chief rival of chipmaker Intel Corp, on its Web site. Dell has long relied exclusively on processors made by Intel, and Rollins gave no indication that the company would introduce computers with AMD chips anytime soon.

Dell said it expects fourth-quarter earnings of US$0.40 to US$0.42 per share -- analysts were expecting US$0.42 per share, according to Thomson. Dell pegged fourth-quarter sales at US$14.6 billion to US$15 billion, while analysts are forecasting US$14.99 billion.
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