Dell finds ‘evidence of misconduct’
The hole that Dell Inc. has been trying to dig itself out of got a little deeper Thursday.
The personal computer maker said an internal investigation found accounting errors, “evidence of misconduct and deficiencies in the financial control environment.” Dell said it wouldn’t file its financial report for fiscal 2007 with the Securities and Exchange Commission until its probe was complete.
“The audit committee is working with management and the company’s independent auditors to determine whether the accounting errors necessitate any restatements of prior period financial statements,” the company said in a statement.
The announcement was made after the stock market closed. Shares rose 4 cents to $23.39 in the regular session before falling to $22.83 in after-hours trading.
The company’s troubles began last year. In August, the U.S. attorney’s office and the SEC said they were investigating Dell’s accounting practices. The company’s board then launched its own probe.
Dell has revealed little about its probe except to say it doesn’t involve the issuing of stock options to employees or how it accounts for revenue. Last September, the company said its investigation was focusing on “the possibility of misstatements” and “issues relating to accruals, reserves and other balance sheet items.”
Round Rock, Texas-based Dell transformed the PC industry by selling directly to consumers and businesses. But competitors that sell in retail stores or through third parties have stolen customers in recent years. Dell has been particularly hurt by slow growth in the PC market in industrialized countries, where it has dominated, and by not capitalizing on the demand for notebook computers.
Hewlett-Packard Co. surpassed Dell at the end of 2006 as the No. 1 seller of personal computers globally. Dell took another blow last year when it had to recall Sony batteries in about 4.2 million laptops that were overheating.
In January, Chairman Michael Dell reclaimed the title of chief executive, jettisoning Kevin Rollins, whom he had handpicked.
In February, the company was hit with a class-action suit from shareholders who claim Dell inflated its profit by recording as revenue undisclosed rebates from chip maker Intel Corp.
A few weeks ago, Dell reported results for the fiscal fourth quarter ended Feb. 2, which showed sales had declined for the first time in five years.
“We’ll look back at this as a bad period for Dell,” said Martin Reynolds, a vice president at research firm Gartner Inc. Thursday’s announcement about misconduct, Reynolds said, isn’t “any more damaging than anything else going on.”
Reynolds said he believed that Dell would ultimately be able to dig itself out.
“They are a company with a lot of resources,” he said. “They just have to pick the right businesses to pursue and the right channels.”
