January 9, 2001
Tech Center
Dell's Earnings Estimates Are Cut
On Fears About Industry Outlook
By GARY MCWILLIAMS
Staff Reporter of THE WALL STREET JOURNAL
Analysts are trimming fourth-quarter and fiscal 2002 earnings estimates for
Dell Computer Corp., convinced the once fast-growing company can't
outrun the industry's slowdown and that Dell will have to reduce its
earnings outlook yet again.
Andrew J. Neff, a Bear Stearns & Co.
analyst, slashed his earnings estimate for Dell's
fiscal fourth quarter ending Feb. 2 to 21 cents
a share from 26 cents, and chopped his
estimate for the next fiscal year by 15 cents, to
90 cents a share. He said the move was
spurred by "weak industry demand and
aggressive industry pricing."
In a report to clients, Mr. Neff said the weaker profit outlook reflects
"lower demand in the U.S. and Asia" and a build-up of rivals' unsold
personal computers, which could lead to discounting. Mr. Neff's estimates
are now the lowest on Wall Street for the two periods, according to First
Call/Thomson Financial.
In response, Dell's shares slid as much as 6% to $17.69, then rebounded
to $19.13 at 4 p.m. in Nasdaq Stock Market trading Monday, up 13
cents, but well off a 52-week high of $59.69.
Dell, which is scheduled to report results Feb. 15, said in November that it
was comfortable with Wall Street expectations for fourth-quarter profit of
26 cents a share. A spokesman for the Round Rock, Texas, company
declined to comment on the revisions.
The market's drop and reversal underscores the worries about the spread
of weak home-PC sales to the corporate PC market. The slowdown
originally hit consumer-oriented companies Apple Computer Inc.,
Gateway Inc., and Micron Electronics Inc. More recently, Compaq
Computer Corp. said its PC sales to small businesses slowed (see article).
Wall Street also continues to raise questions about Dell's ability to translate
falling component prices into a price advantage that can grab market share
from rivals Compaq and Hewlett-Packard Co.
"Dell has been very aggressive on pricing. Memory has come down and it
has taken immediate action," said USB Warburg LLC analyst Don Young.
"But this time, Dell hasn't been able to gain any advantage."
Mr. Young last week lowered estimates for Dell's fiscal fourth quarter to
24 cents a share from 25 cents, the fourth time since August that he
lowered the final-quarter estimate. He also cut his fiscal 2002 estimate to
$1.10 from $1.15 a share.
Lehman Brothers analyst Daniel Niles started the round of
estimate-trimming, cutting his fourth-quarter estimate a penny to 25 cents
and shaving 10 cents off the 2002 fiscal year estimate. He said he was
concerned about corporate spending and said rising PC inventories at Dell
rivals would hurt its profits.
Charles R. Wolf, analyst at Needham & Co., who last week initiated
coverage on Dell with a hold, said the deceleration in PC growth rates
caught up with Dell. "Dell's problem is they got big. It can't grow fast in an
industry that's not growing fast." |
