OH is Dell going to get screwed tomorrow
cbs.marketwatch.com
Dell says memory pricing could affect operating margins
Pricing, availability issues with RAM, LCD supplies
By Cecily Fraser, CBS MarketWatch
Last Update: 7:10 PM ET Oct 18, 1999 NewsWatch
ROUND ROCK, Texas (CBS.MW) -- Shares of Dell Computer could face some turbulence Tuesday morning after the company said that higher-than-expected increases in memory pricing are likely to take a toll on third-quarter operating margins.
On Monday, shares of the world's No. 1 direct-sale computer vendor (DELL: news, msgs) slid 1 1/2 to close at 41 5/16.
The market reacts pretty sourly to any kind of bad news that could affect earnings, said Daniel Kunstler, an analyst at J.P. Morgan.
In after-hours trading, the stock fell to 37 1/4.
After Dell's meeting with analysts Oct. 7, the company said it learned that memory prices had increased as much as 25 percent over previous figures.
"We are managing the memory situation carefully and are working to offset the cost increases with efficiencies in other parts of our business," said Thomas Meredith, Dell's chief financial officer, in a statement.
Meredith said the Round Rock, Texas-based company is taking action to lower overall memory consumption. As a result, Dell said it considers the effects of the memory-cost issue to be a short-term matter, but one that could hurt operating margins in the third quarter.
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10/18/99 5:16:18 PM ET
During the fall analyst meeting, Dell said that memory suppliers affected by last month's earthquake in Taiwan had been quite responsive to Dell's volume needs, and that the supply situation in that country was "progressing well."
Company executives cautioned, however, that the pricing and availability issue for other components was more difficult, particularly for random-access memory and liquid-crystal displays (LCDs) used in notebook computers and flat-panel screens.
Dell did not comment on how the pressure on profit margins might impact earnings per share.
Dell's third-quarter earnings are set for release Nov. 11. The consensus estimate, compiled by First Call, is 20 cents.
Kunstler, who has a "market performer" rating on the shares, said his third-quarter earnings estimate is 19 cents. He said he plans on adjusting it.
The company added that customer demand for its products is "extremely strong" and continues to outpace the computer-systems industry. Additionally, overall availability of components has improved, Dell said.
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