Concerns about demand prompt downgrade; stock declines 4 percent
By John Pletz
AMERICAN-STATESMAN STAFF
Tuesday, January 14, 2003
Dell Computer Corp. shares fell 4 percent on Monday after J.P. Morgan downgraded the stock based on concerns that computer demand will be weak during the first half of the year and that recent price-cutting by Hewlett-Packard Co. will eat into Dell's revenue growth and profit growth.
Dell's stock fell $1.17 to $25.98 on Monday, after analyst Bill Shope of J.P. Morgan downgraded the stock to "neutral" from "overweight."
Shope also reduced his earnings and sales estimates for the coming year to 95 cents a share on sales of $40.4 billion from 98 cents and $41.6 billion.
Shope said he is concerned that Dell's stock price is reaching its peak of about 29 times its expected profits for the fiscal year ending in January 2004. As recently as mid-November, Dell stock crested the $31 mark, but mostly it has been trapped in the mid-$20s amid concerns that it is overvalued based on its expected sales. Investors are also anxious about the overall demand for technology products and services.
"With the increasing aggression of H-P in the PC and server segments, we believe Dell's profitability is under increasing pressure," he wrote in a note to clients Monday.
Shope estimated that industry computer shipments grew at about half the traditional rate during the fourth quarter, when compared with the third quarter.
But beware the ides of March. Most companies are beginning to report fourth-quarter results this week, but many observers already are focused on the first quarter, which is traditionally the slowest period of the year for many businesses, including computers.
More importantly, Shope said he doesn't expect a major upgrade cycle in the second half of the year.
Shope isn't the only one worried about profits in the next few months.
Chuck Hill, head of research at financial-data house First Call, is nervous about the first quarter. Last year, each quarter's financial results were better than the one before.
"The pattern is going to be broken in the first quarter and probably the second," Hill said. "But I really don't know what the second half is going to bring. My crystal ball is as fuzzy as it's ever been." |
