Dell Says Sales Miss Forecasts in 3rd Quarter
Dell Inc. said Monday that it would report third-quarter sales below forecasts because demand from U.S. consumers and British businesses fell short of its expectations. The shares dropped 6%.
In preliminary results, revenue was $13.9 billion, compared with the $14.1 billion to $14.5 billion previously predicted, Round Rock, Texas-based Dell said. Profit of 39 cents a share was at the low end of prior estimates of 39 cents to 41 cents, Dell said.
Dell missed its forecast for the second straight quarter as Chief Executive Kevin Rollins struggled to balance a strategy of undercutting competitors with a new push to sell pricier, more-profitable products.
Sales growth of 11% in the quarter would be the slowest in more than three years and may dash Rollins’ plans to reach $60 billion in sales this year.
“All of a sudden, long-term growth-rate expectations have ratcheted down,” said Chuck Jones of Atlantic Trust Stein Roe in San Francisco.
Dell said it would also have an expense of $450 million, or 14 cents a share, $300 million of which is associated with costs to service computers that were built with a faulty part supplied by an unnamed company. The part was in some of the Optiplex desktop PCs sold to businesses, Dell said, without being more specific.
Shares of Dell fell $1.24 to $30.64 in extended trading and reached as low as $29.98. They earlier rose 82 cents to close at $31.88.
Dell shares have tumbled 19% in less than three months on concern that the company won’t be able to maintain its historical pace of sales growth, which averaged 18% in the last three years.
A strategy of selling directly to customers and keeping only one day’s inventory on hand allowed Dell to undercut rivals and win sales. Dell was able to overtake larger competitors including Hewlett-Packard Co. and IBM Corp. to become the dominant maker of PCs.
Hewlett-Packard, the No. 2 seller of PCs, this year stepped up competition to win back market share.
In contrast to Dell, shares of Palo Alto-based Hewlett-Packard are up 34% this year on optimism that new CEO Mark Hurd will be able to take market share as he revives profit.
Rollins, 52, in August reported second-quarter sales that missed Dell’s own predictions. Rollins said the company was “too aggressive” in cutting consumer PC prices and “essentially left money on the table.” Dell gets 63% of its revenue from PCs, with desktop systems representing the single largest category of sales at 37% in the second quarter.
“We’ve got to get back into the normal mode of things of selling the systems that are the most profitable,” Rollins said in August.
In the third quarter, Rollins pushed sales of more powerful, higher-priced computers aimed at gamers and high-tech enthusiasts. Chairman Michael Dell, 40, appeared on stage in New York last month to unveil the company’s lineup, including the costlier PCs and larger and more-expensive digital televisions.
“I don’t think they’ve got the formula right yet,” said Tony Ursillo of Loomis, Sayles & Co. in Boston.
The company will announce final results Nov. 10.
