Dell’s reputation suffered another dent on Monday as the US company warned that its revenues and earnings in the latest quarter would fall short of Wall Street forecasts.
The announcement added to doubts that have swirled since August, when the world’s biggest PC maker first showed signs that it was struggling in the face of a number of pressures, including demand for rock-bottom prices from US consumers. The company’s shares, which had already slumped by 20 per cent since that disappointment, slid a further 8 per cent in morning trading in New York on Tuesday.
The unusual earnings warning marked a significant moment for a company that has until now shown great consistency in its performance, said Roger Kay, an analyst at Endpoint Technologies Associates. “This is a seismic moment in the [PC] industry,” he said.
The Texas-based company said on Monday that it expected to report earnings for the three months to the end of October of 39 cents a share, below stock market expectations of 40 cents and at the lower end of its own guidance. Revenues would be “approximately $13.9bn”, it added, below the $14.3bn expected by Wall Street and below the bottom of its own guidance range.
Dell once again blamed its troubles partly on its US consumer operation, which had also been behind the August shortfall in revenues. Having moved into the consumer market in the late 1990s almost by accident, as a by-product of its core business of selling to companies, Dell had found the low prices and high service demands of consumers difficult to master, said Mr Kay. Dell also blamed difficult market conditions in the UK for its latest warning.
The last time Dell warned that it would miss an earnings forecast was in early 2001, although on that occasion it came amid the wider collapse in technology spending that followed the 1990s boom. In August it reported revenues for the second quarter of this year that were below expectations.
In August, Kevin Rollins, chief executive officer, said that Dell had made mistakes in its pricing and could have maintained its sales volume while charging slightly more for its machines.
Earnings for the latest quarter would also be hurt by a $450m charge, more than $300m of which was to cover the expected costs of mending PCs that were shipped with faulty capacitors, Dell said. The rest of the charge was to cover “the costs of workforce realignment, product rationalisations and excess facilities”.
