John..... hope you don't mind my posting your "Taco Dell" message. Are we talkin' nacho chips here??? El To: edamo (152372 )
From: John Koligman
Thursday, Jan 27 2000 10:18AM ET
Reply # of 152383
Here's the WSJ article on Dell. First Mikey says '2000 will be a great year' Now Mikey says
'we need to kickstart demand'. Then Mikey says 'we don't see any Y2K issues', now Mikey
says 'the biggest impact on our quarter was Y2K'. Is this 'Taco Dell'???
Regards,
John
January 27, 2000
Dell Lowers Earnings Expectations
On Purchase Delays, Chip Shortages
By GARY MCWILLIAMS
Staff Reporter of THE WALL STREET JOURNAL
Dell Computer Corp., warning its days of sky-high revenue growth are ending for now, said
customer-purchase deferrals at year end and chip shortages landed a one-two punch to its
fourth-quarter sales and profit.
The Round Rock, Texas, personal-computer maker said it expects to report net income for
the fiscal quarter ending Jan. 28 of $430 million, or 16 cents a diluted share -- well below
analysts' estimate of $462 million, or 21 cents a share. The results include a penny-a-share
gain from the sale of investments.
PC-Sales Growth Slowed Down in Fourth Period, Raising Brows (Jan. 24)
Company Profile: Dell Computer
It said fourth-quarter revenue will be about $6.7 billion, about $800 million below
expectations but up 30% from $5.17 billion in the year-earlier quarter. The company
expects to report results Feb. 10.
Dell also warned its sales gains are expected to slow this year. It predicted year-over-year
revenue gains in the low 30% range, down from 38% growth last year and 48% growth in
1998.
It was the second such warning in the past two quarters from the onetime highflier and
follows a similar shortfall at PC maker Gateway Inc., which also blamed disappointing
results on a business slowdown and chip shortages. Dell's stock fell $1.75 to $40.375 in 4
p.m. trading on the Nasdaq Stock Market. In after-hours trading, the shares were trading at
$36.375.
Analysts predicted a sell-off in PC stocks Thursday as investors see Dell's caution as a
poor indicator from a leading business PC company. "We're seeing a secular growth rate
that's slowing," said Ashok Kumar, a PC analyst with US Bancorp Piper Jaffray. "There will
be a recalibration of valuations on the PC companies."
Dell also said earnings gains will be slowed during its fiscal first quarter as it tries to
stimulate demand. The company said first-quarter earnings may not exceed the $430
million of the fourth quarter and sales may be up just in the mid-single digits. "We need to
kick-start the engine," Chief Executive Michael S. Dell said.
"Clearly, this is the most significant shortfall this company has had since 1993," said
Charles R. Wolf, an analyst at Warburg Dillon Read LLC. He said Dell now has such a large
share of the business PC market that it can't continue to increase revenue at two to three
times the industry's overall growth rate.
Mr. Wolf said the company's problems signal that business hasn't rebounded since
companies slowed PC purchases in advance of the year's end, due in part to a pause in
spending as they made sure their year-2000 computer bugs were fixed. Unlike most other
companies, Dell's fourth period finishes Jan. 28, which gave it an extra month to catch up.
"Obviously, they weren't able to recover in January," he said.
Dell made the announcement after the close of regular trading.
"The biggest impact on our quarter was Y2K. We don't expect Y2K to come again," Mr.
Dell said. The Y2K slowdown cost the company $500 million in sales, the company
estimated.
Dell had said it expected sales gains to consumers and small and medium businesses to
make up for the lost business. "I don't think we correctly understand the impact on our
business," Mr. Dell said.
A second factor was Dell's inability to obtain components from Intel Corp. and Rambus Inc.
Mr. Dell said the "lack of availability of key semiconductor components," largely
microprocessors from Intel and memory chips from Rambus, contributed to about a $300
million shortfall in consumer PC sales.
Earlier this month, Gateway also said it was unable to obtain sufficient supplies of chips
from Intel. Like Gateway, Dell said it was unable to obtain sufficient quantities of Intel 450
megahertz processors. Dell had to offer customers more costly 500 megahertz processors
and eat the difference.
However, unlike Gateway, it doesn't plan to stop its practice of solely purchasing
microprocessors from Intel. "You're not going to see us change our approach to partnering
based on one difficult transition," Mr. Dell said.
Dell's problems were caused in part by its strategy of rapidly embracing new component
technologies, but that is risky if the suppliers can't deliver reliably. "Dell has always played
at the leading edge of the [component] transition. The transition was not played well by a
number of our partners. We were left with a shortage of high-end product," Mr. Dell said.
Fourth-quarter results were also hurt by a one-time charge associated with its purchase of
ConvergeNet Technologies Inc. The charge lowered earnings by one cent a share.
Write to Gary McWilliams at Gary.McWilliams@wsj.com
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