Market Watchers Wary Of Dell Computer's Slowing
Growth Rate
Tuesday, February 8, 2000 01:15 PM
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By Scott Eden, Staff Reporter
NEW YORK -(Dow Jones)- Shares of Dell Computer Corp. fell in heavy Nasdaq trading after a Warburg
Dillon Read analyst downgraded the stock, spooking investors already jittery about the company's
prospects following its fourth-quarter profit warning last month.
Dell's (DELL, news, msgs) shares have been on a steady decline since reaching a 52-week high of
$53.97 Dec. 23.
Warburg analyst Charles R. Wolf made the call based on the Round Rock, Texas-based company's
slowing growth rate. That is not new to either investors or the company, which on Jan. 26 warned that
annual growth would slacken to a low-30% rate, down from 1999's 38%.
"As it captures an increasing share of the personal computer market, we believe Dell's growth rate
must continue to slow," Wolf wrote in a research note Tuesday. "Against a headwind of slowing
growth, Dell's shares are unlikely to outperform."
Wolf lowered his rating to "hold" from "buy" and his earnings estimate for fiscal 2002 ending in January
to $1.20 a share from $1.30. He held his 2001 per-share forecast at 90 cents, in line with the mean
estimate of analysts surveyed by First Call/Thomson Financial. For fiscal 2002, analysts expect Dell to
earn $1.23.
The company, which reports fourth-quarter and year-end results after Thursday's market close, expects
to report earnings of 68 cents a share for fiscal 2000, compared with 53 cents a year earlier.
According to Wolf, even with his reduced growth rate for fiscal 2001, which follows company guidance
at about 32%, Dell would need to "capture 55% of industry growth, not a lay up given that Dell's
competitors have defendable positions in several markets."
However, Dell has been moving recently to target faster growing business lines. The company formed a
division aimed at selling computer servers and other equipment. The division also offers services to
Web-hosting and Internet-service firms, already a booming business for Sun Microsystems Inc.
(SUNW, news, msgs), International Business Machines Corp. (IBM, news, msgs), Hewlett-Packard
Co. (HWP, news, msgs) and Compaq Computer Corp. (CPQ, news, msgs).
Dell officials weren't immediately available for comment.
Quote for referenced ticker symbols: CPQ, DELL, HWP, IBM, SUNW
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