Wednesday January 26 7:55 PM ET
Dell Warns Q4 Results to Fall Short, Again
ROUND ROCK, Texas (Reuters) - Dell Computer Corp. (NasdaqNM:DELL - news), the world's No. 2 personal computer maker, on Wednesday warned
revenue and earnings would fall short of expectations for the second quarter in a row, amid parts shortages and a sales slowdown tied to Year 2000 fears.
Dell said it expects revenue of about $6.7 billion for the fourth quarter ending January 28, up about 30 percent from the prior-year period, but well below its prior
year growth rate in the high 30 percent range and a historic 50 percent plus rate.
Shares of Dell fell as much as 4 points to 36-3/8 in after-hours trading, extending a regular session decline of 1-3/4 from its close of 42-1/8 on Nasdaq Tuesday.
``The bottom line issue is that we just misjudged when large corporations would begin their post-Y2K installations,' Dell Chief Financial Officer Tom Meredith told
analysts in an impromptu conference call held after the earnings warning.
``We did position January as a wildcard... in terms of Y2K,' Meredith said. ``The rebound in January simply did not happen,' he said.
Dell Says That Phenomenal Growth Rates Are Over For Now
But while some analysts had warned over the past two months of possible shortfalls by the Round Rock, Texas company, Dell cautioned that its higher rates of
growth were unlikely to return in the year ahead, once Y2K issues subside.
``Appropriate financial goals for Dell in the new fiscal year would be annual revenue growth in the low 30-percent range, with net margins in the low to mid
7-percent range, Meredith said in a statement.
Earnings for the fourth quarter ending Jan. 28 are expected to be about $430 million, or 16 cents per share, including a gain of about 1 cent per share from the sale
of investments. The analysts' consensus prior to the warning had been for profits of 21 cents a share, Dell said.
Dell officials said the company wanted to lower investor expectations so it would not once again disappoint them, as it has in three of the past five quarters.
Dell is one of many recent high-flying technology stocks to disappoint investors, raising questions about how long investors may keep their faith in the sector.
``We are comfortable in our outlook going forward, we just want to set more reasonable goals,' Meredith said, adding: 'Ones you are going to be more
comfortable we are going to meet.'
``Sustainability and predictability is what we are after... This is not fun,' Meredith said of the trap of allowing expectations to run ahead of Dell's capacity to meet
them.
Speed Kills When Parts Become In Short Supply
The company said the primary causes of the latest shortfall were an inconsistent flow of computer chip components for use in its PCs and a slower-than-expected
rebound in PC sales to corporate and institutional customers as companies slowed spending on new equipment in order to prevent Y2K glitches.
Dell, which has won a wide following among investors for the torrid rates of growth in its now $25 billion-a-year business, has fine-tuned its operations to allow it
take advantage of the latest available parts.
With component prices plunging in recent years, Dell benefits by being able to pass on the latest, greatest technology to customers at ever lower prices.
``Dell always plays at the front end of those transitions and this time that was quite dangerous for us,' Meredith said.
The danger comes when disruptions occur in the PC industry supply chain of microprocessors, computer memory, graphics chips, computer display screens and
other key components. This has caught many PC makers short in recent quarters.
Meredith said Dell suffered a shortage of Intel Corp. (NasdaqNM:INTC - news) microprocessors, and memory chips from other suppliers.
In response to a question over whether Dell might use chips from Intel rival AMD, a Dell official said the company would not consider shifting suppliers ``based on
one difficult (product) transition' saying such a move would be ``rash.'
The company said the parts shortage caused $300 million in lost sales, primarily of newly-introduced consumer products. Revenue from Dell's worldwide consumer
and small-business segment is still expected to be more than 50 percent higher than the prior-year quarter, a growth rate of better than three times the level of Dell's
nearest direct competitor, it noted.
The Y2K slowdown cost the company another $500 million in expected revenue. Dell said it nonetheless expects sales to corporate and institutional accounts to
rise more than 20 percent from the year-ago period, which the company said it believes to be a multiple of the industry rate.
``While we're clearly disappointed with our operating results, our overall business is healthy and we believe Dell will continue to significantly outpace the revenue
and profit growth of our major competitors,' Meredith said.
Compaq Computer Corp. (NYSE:CPQ - news), the world's No. 1 PC maker measured in terms of units shipped, on Tuesday reported a 56 percent decline in its
fourth quarter earnings, as revenues fell 4 percent.
Gateway Inc. (NYSE:GTW - news), another direct competitor of Dell, saw fourth quarter profits fall slightly during its latest quarter which it also blamed on
shortages of the latest microprocessor chips from top chipmaker Intel. Gateway echoed Dell in complaining last month that its supply was ``extremely constrained,
spotty and unreliable.'
In October Dell warned that it expected third-quarter profit margins to fall due to a spike in computer memory chip prices at the time.
Dell will announce its full financial results on Feb. 10.
Late Wednesday Hewlett-Packard Co. (NYSE:HWP - news) said that revenue and earnings growth for its fiscal first quarter and full year were on track to meet
expectations as home PC and laptop sales remained robust. |
