Dell Inc's shares received the first "sell" recommendation from a major Wall Street investment bank in at least a decade as Citigroup Inc told investors to dump the world's largest personal-computer maker. Dell shares on Friday fell the most in two months after Citigroup analyst Richard Gardner said that the company's best days may be "gone forever." Shipments stagnated in the US last quarter and marked the worst performance in the company's history, researcher IDC said this week.
"Near term prospects for Dell's most-profitable end market do not seem bright," Gardner, in San Francisco, wrote in a note.
Dell may have to cut prices to regain customers and the stock may fall into the low-20s, Gardner said. Dell lost market share worldwide last quarter to Hewlett-Packard Co, which is slashing its costs and erasing Dell's historical advantage in keeping hold of expenses.
Gardner, who previously rated the shares "buy," said the Round Rock, Texas-based Dell's price advantage had fallen to 5 percent or less from as much as 20 percent over competitors such as Hewlett-Packard. Rivals have adopted its inventory techniques and are willing to accept lower profits, Gardner wrote.
Dell has been among the most-loved stocks on Wall Street the last 10 years, averaging more than 35 percent annual returns. The stock dropped US$1.23, or 4.4 percent, to a three-year low of US$27.01 on Friday in NASDAQ Stock Market composite trading. Volume of 88.7 million shares was four times the average of the past six months. Dell lost 29 percent last year, its biggest annual decline since 2000.
Dell spokesman Jess Blackburn declined to comment.
Gardner is the only analyst to ever recommend selling Dell among major investment firms, according to data compiled by Bloomberg News going back 10 years. Denmark-based firm Jyske Bank rated the stock "reduce" last year. Currently, 22 firms that cover the stock rate it "buy" and 11 call it a "hold."
"It looks like the easy days for Dell where the competition was mis-executing are behind them," said Sunil Reddy, who helps manage US$22 billion, including Dell shares, at Fifth Third Asset Management. "Dell tends to do well when component prices go down. We're not in that environment now."
Chief executive officer Kevin Rollins, 53, who took over the post from Michael Dell in July 2004, has failed to revive Dell's revenue growth. He missed a goal of US$60 billion in revenue last fiscal year, coming in at US$55.9 billion. Sales growth slowed to 13 percent in the fourth quarter, from an average of 18 percent the past three years.
Now he is being outpaced by competitors. Worldwide PC sales increased 13 percent last quarter, Framingham, Massachusetts-based IDC said April 19. US sales gained 5.3 percent.
Dell trailed both markets. Dell gained 10 percent worldwide and less than 1 percent in the US, IDC said. It marked the first time since 1996 Dell's US growth was less than 5 percent.
Over the past five years, all of Dell's competitors implemented the same model of buying raw materials just in time and keeping inventory low, Gardner said. Dell also needs to improve customer service after complaints about its representatives hanging up on people, Gardner wrote.
Rollins in an interview last month said he kept profit margins too high last year, losing some customers. Dell plans to rebuild investor confidence after missing sales estimates twice last year and issuing a disappointing forecast in February, he said.
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