August 17, 2006 10:17 pm

Dell reports 51% drop in profit

Dell on Thursday said it was under informal investigation by the US Securities and Exchange Commission, adding to a string of woes that have beset the world’s largest personal computer maker.

It said the SEC probe related to “revenue recognition and other accounting and financial matters for certain past fiscal years” but was not related to stock options backdating, adding that it “does not expect any financial impact”.

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Dell made the comments after reporting that second-quarter profits fell by more than half because of overly aggressive pricing in a sluggish computer market.

Shares in the company, which this week recalled more than 4m laptop Sony batteries because of concerns about explosions, fell more than 5 per cent at one point in after-hours trading on Thursday. “We are clearly disappointed with our financial results,” said Kevin Rollins, chief executive. “We don’t think we did a very good job on [pricing] in the Q2 timeframe.”

The slip had been widely expected after Dell last month warned that earnings and sales would fall below Wall Street expectations. Along with accelerating $3bn in cost cuts and increasing investments in customer services, Dell said it would extend its use of microchips made by Advanced Micro Devices in an effort to re-invigorate sales.

Dell has been using AMD chips since May, when it dropped its decades-old exclusive reliance on Intel, the world’s biggest chipmaker, and began installing AMD processors in some of its high-end servers. Dell said on Thursday it would begin offering AMD processors in its Dimension desktop computers next month.

Falling prices, weak sales growth and increased competition from rival computer makers such as Hewlett-Packard and Acer have bruised Dell’s reputation as the unchallenged leader in the PC market this year. Shares in the company have fallen more than 50 per cent in the past 12 months.

Dell said it made earnings of $502m in the second quarter, well below the $1bn in profits it recorded in the second quarter last year. Earnings per share were 22 cents a share, compared with 41 cents last year. Sales grew 5 per cent to $14.1bn – much lower than the company’s traditional sales growth of the mid- to high-teens.

The US produced the biggest drag on sales, with growth of 1 per cent. Sales in Asia grew 17 per cent.

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