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Dell plagued by manufacturing delays

Make no mistake, Dell is in the black. But production delays, particularly problems in getting the vivid paint colors of its new line of notebook computers right, are preventing the struggling company from growing as quickly as investors have hoped.

Dell reported on Thursday that lower component prices helped push net income in its second quarter up 46 percent to US$733 million, or US$0.32 a share, from US$502 million, or US$0.22, in the year-earlier period. Revenue grew 4.8 percent to US$14.77 billion from US$14.09 billion.

"The turnaround looks to be on track, but the reality is that the expectations were low," said Shaw Wu, a computer sector analyst with American Technology Research. "They are good, but not great."

Dell managed to beat income and revenue predictions of a consensus of Wall Street analysts, who estimated Dell would report sales of US$14.6 billion and net income of US$0.30 a share. But Wall Street analysts said that their projections were modest and that Dell continued to lose market share to competitors like Hewlett-Packard and Acer.

Hewlett-Packard, for instance, said that its PC sales grew 29 percent to US$8.9 billion in the three-month period when Dell's PC sales grew 3.5 percent to US$8.9 billion.

The computer maker, based in Round Rock, Texas, has been trying to revive itself under the direction of its founder, Michael Dell. Dell took back the role of chief executive in January after growth at the company flagged.

Responding to the growing demand for laptops, Dell in late June introduced two new lines of notebooks, which come in shades the company calls espresso brown, flamingo pink and midnight blue. It advertised the colorful computers heavily, despite the product delays that hampered timely shipping. Dell has attributed the problem to a shortage of displays and struggles getting ample supplies of paint.

But it is customers who have been feeling blue and venting angrily on Dell's Web site, saying they are being told that shipping delays might persist weeks or even months.

Analysts said quality issues with the paint and supply constraints on certain types of displays have overwhelmed its manufacturing.

Clay Sumner, an industry analyst with Friedman, Billings, Ramsey & Company, has told investors that Dell is gaining a reputation among customers for not being able to meet shipment dates.

The delays appear to have damped second-quarter sales growth on notebooks, which rose 5 percent to US$3.9 billion from the same period last year.

Bob Pearson, a Dell spokesman, said he was not able to estimate when the production problems would be resolved or how long the delay for the orders would last.

There were some bright spots for Dell in the quarter that ended on Aug. 3. The company said a decline in the costs of components, like processors and memory, bolstered income.

The cost reductions helped Dell's gross margin grow to 19.9 percent, up from 19.5 percent in the first quarter of this year.
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