Dell Computers Stock Fall May Mark Industry-Wide Problem
Oct. 6 (The Dallas Morning News/KRTBN)--Warnings of slower growth from Intel
Corp. and Apple Computer Inc. last week could be explained as idiosyncratic. But
when Dell Computer Corp. issued negative news for the third time this year, it
starts looking like an industrywide phenomenon.
"Current weakness appears industry-related, not company-specific, in our
opinion," said Deutsche Banc Alex.Brown analyst Phil Rueppel Thursday.
Shares of the world's No. 2 personal computer maker, Dell Computer of Round
Rock, Texas, fell almost 11 percent Thursday to close at $25.19.
Other PC stocks felt Dell's pain. Gateway was down more than 5 percent, or
$2.65, to $49.13. Compaq Computer Corp. of Houston was down 13 percent, or
$3.74, to $25.10.
Overall, the technology-heavy Nasdaq was down 51 points to close at 3, 472.10.
The Dow closed at 10,724.94, down 59.56.
After the closing bell Wednesday, Dell told investors that weak demand in
Europe, combined with the troubled euro, was weighing on third-quarter sales.
The company said, however, that earnings estimates are still on target.
Dell's announcement renews the debate over whether the age of the PC is over.
Michael Dell has repeatedly said that "reports of the death of the PC are
greatly exaggerated," and he did not waver from that view in his talk Wednesday
to analysts in Austin.
Meanwhile, Michael Capellas, the CEO and newly appointed chairman of archrival
Compaq -- still the world's largest PC maker -- has been steering the company's
message away from PCs to what he terms "the pervasive information era."
"Compaq's strategy is not just about devices or building beige boxes," he said
in a recent speech to Wall Street analysts. He said billions of Internet devices
will gather information from "always-on" networks. Wireless and broadband
services will fuel the growth.
Wall Street is missing the boat by punishing PC stocks, said Dr. Larry Leibrock,
associate dean for technology at the University of Texas at Austin. "I think
there's been a lot of foolish optimism out there," he said.
He said the PC industry "is in a period of interregnum," as corporations try to
figure out network and infrastructure issues, not the least of which is privacy,
Dr. Leibrock said.
"Chief information officers are focusing on which networks to buy and what kind
of infrastructure they need and security," he said, "not on platforms [the
desktop model]."
Worldwide sales of desktops and notebooks this year will exceed last year's
shipments by 19 percent, which is somewhat below the average of the last five
years, according to research firm International Data Corp.
Dell said its sales for the quarter that ends Nov. 4 will rise about 27 percent
compared with previous expectations of 30 percent. The company also said
earnings for the quarter might be 1 to 2 cents a share off the projections of 28
cents.
If the warning took much of the market by surprise, at least one analyst was
dead-on in predicting Dell's path.
Ashok Kumar, an analyst with U.S. Bancorp Piper Jaffray Inc., said a month ago
that revenue for Dell for the quarter wouldn't meet the 30 percent forecast that
the company provided.
But he also said the market is overly temperamental when it comes to PC stocks.
"I think investor sentiment goes from one extreme to another, " he said.
"Demand is not falling off a cliff."
Meanwhile in Austin, on the final day of Dell's meeting with
analysts, executives reiterated that they believe their company has plenty of
opportunities and continues to enjoy significant cost advantages over its
rivals.
"This is a great industry, and Dell is a great company within that industry,"
said Jim Vanderslice, a company vice chairman. He said Dell's situation is
different from that of either Apple or Intel.
"Lumping us in with them is a mistake," said Mr. Vanderslice. "Look at our base
operations, and you see a fantastic performance."
At the conference, Dell executives said they expect annual industry growth over
the next several years of between 14 percent and 16 percent, and they said Dell
will grow at 1.5 times to 2.5 times that rate.
"Any industry growing in the teens, by any measurement, you'd have to say it's a
very healthy industry," said Kevin Rollins, vice chairman.
Dell is keen on growth opportunities worldwide, executives said, including
relatively untapped markets such as Brazil, China and India.
Executives noted that Dell remains highly profitable. Indeed, one of its biggest
challenges may be finding what to do with its cash.
Executives said share repurchases and investments in start-ups are both
possibilities, as are acquisitions, particularly businesses that are
complementary to Dell's products and services.
Officials said there is no deal currently on the table, but that they are
keeping an open mind.
--By Leah Beth Ward and Alan Goldstein
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