NEW YORK (CNNfn) - In a rare disappointment, Dell Computer Corp. reported weaker-than-expected revenue growth for the fourth quarter, sending its shares reeling in after-hours trade.
Dell (DELL) , the Round Rock, Texas-based direct seller of PCs, posted a fourth-quarter profit of $425 million, or 31 cents a share, on $5.2 billion in revenue. The 31-cents-per-share figure was in line with analysts forecasts, according to First Call.
Dell, however, is noted for exceeding Wall Street forecasts. In fact, analysts say the company has met or exceeded expectations for the last 16 quarters, allowing Dell to consistently outperform the S&P 500 index.
The company also fell short of analysts expectations for $5.5 billion in revenue. Dell's 38-percent revenue growth in the fourth-quarter was far below the 52-percent sales growth in the nine months through October. It was also well below Dell's third-quarter year-over-year sales growth of 51 percent.
Dell shares fell 1-1/8 to close at 88-3/4 in Tuesday trade, then tumbled to 75-1/2 in after-hours trade.
Competition heats up
Dell shares tumbled last Friday amid fears that stiff competition in the direct-sales market would harm its fourth-quarter sales.
Though the company's worldwide market share has steadily increased, Dell is facing heated competition from No. 1 computer maker Compaq Computer Corp. (CPQ) and Gateway Inc. (GTW).
Dell's earnings and revenue growth remained far ahead of its competitors throughout 1998 largely because its direct-sales model enabled it to keep inventories at low levels.
Art Russell, an analyst at Edward Jones, said rival computer makers have taken a chunk out of Dell's business as the rest of the industry has gotten its inventory problems under control.
"Companies like Compaq, HP and IBM (IBM) now have their inventories in shape because they're combining a direct model with retail sales," Russell said. "That's having an impact on Dell."
Russell noted that Dell's business fundamentals remain solid. The average selling price of Dell PCs dipped only slightly, falling to $2,350 from $2,400 in the third quarter, and the company's gross margins increased to 22.4 percent from 22 percent in the year-ago quarter.
Expectations for the company, however, remain high among investors.
"Dell has turned into a growth story, a momentum-type stock," Russell said. "I think the momentum players are worried that they've seen the glory days of Dell."
Internet sales
Dell said it generated sales of $14 million a day through its Web site. Recently, however, Compaq began selling its computers over the Internet.
"Last year we dramatically extended the capabilities of the Dell direct business model through opportunities with the Internet," said Chairman and Chief Executive Officer Michael Dell. Our online customer mix moved from a predominantly consumer-oriented base to a far broader base including business and government customers."
Dell's earnings beat its year-ago results of $285 million in profits, or 20 cents a share, on revenue of $3.7 billion.
For the 1999 fiscal year, Dell posted a profit of $1.5 billion, or $1.05 a share, on revenue of $18.2 billion, compared with 1997 profits of $944 million, or 64 cents a share, on $12.3 billion in revenue.
Separately, Dell set a 2-for-1 stock split to shareholders of record as of Feb. 26, 1999. The split will be paid on March 5. |
