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Sat, Aug 19, 2006 - Page 10 News List

Dell Inc announces 50 percent drop in quarterly earnings

AP , DALLAS

Computer maker Dell Inc posted a 51 percent decline in net earnings for its second quarter on Thursday and said regulators were investigating its accounting. The company's shares fell in after-hours trading.

The company also announced an expanded partnership to put Advanced Micro Devices Inc computer chips into a new line of servers and desktop PCs as early as next month.

Dell's profits fell to US$502 million in the second quarter from US$1.02 billion in the same period a year ago.

This week the company also recalled 4.1 million potentially flammable batteries supplied by Sony Corp for laptop computers.

Dell said it was cooperating with an informal investigation by the US Securities and Exchange Commission (SEC) over accounting and financial reporting. Dell said it did not believe there were any issues but was conducting its own internal investigation.

The results and the SEC probe were announced after the close of regular stock trading on the NASDAQ. Dell's shares slumped US$1.25 or 5.5 percent to US$21.55 in after-market trading.

CEO Kevin Rollins said Dell received a letter from the SEC in last August "asking us about a fairly broad level of questions on some revenue recognition."

"We're complying with that informal investigation," Rollins said. "That's about all we know. We don't think there are going to be any issues that are material that we're going to have to worry about."

Dell, which slashed its second-quarter outlook last month, reported earnings of US$0.22 per share on sales of US$14.1 billion, which were up 5 percent from a year ago. The company had originally forecast earnings of US$0.32 per share on sales of US$14.2 billion.

However, the results met the lowered expectations of analysts polled by Thomson Financial. In the same period a year ago, Dell had earnings of US$0.38 per a share on sales of US$13.4 billion.

Rollins said several factors were to blame, mainly overly aggressive pricing, a slowing marketplace and component prices that weren't lowering as expected.

In sharp contrast to Dell, Hewlett-Packard Co on Wednesday posted third-quarter profit that beat expectations while raising its guidance for the upcoming period.

Dell did not provide an estimate for the recall's cost but said it will not materially affect the company's financial results, suggesting that Sony will bear the brunt of the cost. Analysts' estimated the recall costs could run to between US$200 million and US$400 million.

In its last earnings report in May, Dell said it would start using AMD processors for specialized computer servers used mainly by large businesses. It ended a long-standing exclusive relationship between the computer maker and Intel, AMD's chief rival.

Under Thursday's announcement, Dell will offer Dimension desktop PCs with AMD Athlon processors net month, and several new server models using AMD Opteron chips by the end of the year.

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