Aug 27 2009
Dell posts sharpest stock drop
DELL Inc., whose ranking in the global personal-computer market slipped last quarter, had its biggest drop in almost a year in Nasdaq trading after reporting earnings that missed analysts’ estimates.
The company reported a 54-percent drop in third-quarter net income to $337 million, or 17 cents a share, as sales slid 15 percent to $12.9 billion. Analysts on average predicted profit of 27 cents and sales of $13.1 billion.
Chief executive officer Michael Dell is focused on lifting profit, even as that means yielding market share to rivals. Dell fell behind Hewlett-Packard Co. and Acer Inc. after holding the no. 2 spot since 2006. Dell attributed the drop to a PC market fueled by consumers, who account for just 20 percent of revenue. The company is counting on a revival in business spending in coming months to resuscitate sales.
“Dell remains a transition story,” said ShawWu, an analyst at Kaufman Bros. in San Francisco, who rates the shares ‘hold.”
“The conclusion here is that it looks like they are losing share more than expected, even though there was some expectation of that already.”
Dell, based in Round Rock, Texas, declined $1.58, or 10 percent, to $14.29 at 4 p.m. New York time in Nasdaq Stock Market trading, the biggest drop since Dec. 1. The stock has gained 40 percent this year.
Gross margin, the percentage of sales remaining after production costs, was17.3 percent, missing the 18.6 percent Wu anticipated. Dell had $102 million in expenses for “organizational effectiveness actions,” including the October decision to close a desktop PC factory in North Carolina, chief financial officer Brian Gladden said.
Prices for memory and liquid-crystal displays also weighed on profit margins, he said.
The company will continue to put profit before market share and last quarter walked away from some consumer retail deals because “the margins weren’t acceptable for us,” Gladden said.
Shipments at both Hewlett-Packard and Acer rose last quarter, according to Framingham, Massachusetts-based IDC. Dell’s PC shipments fell 8.4 percent, compared with a 17.1-percent drop in the second quarter, the research firm said.
Dell said it expects fourth-quarter revenue to improve over the third quarter. spurred in part by a pickup in consumer demand in the holiday shopping season. Orders from business customers have been rising steadily over the past few months and are expected to continue this quarter, the company said.
Since returning as CEO in January 2007, Dell has made 10 acquisitions, cut more than 10,000 jobs and outsourced 43 percent of production under a plan to save $4 billion annually. He also entered the smart phone market in China and Brazil and intends to offer the devices in the US next year.