RealTime IT News

Dell Tumbles on Sales Downgrade

Dell  lowered its sales expectations for the second consecutive quarter today, saying that it expects second-quarter earnings of $14 billion on earnings per share of 21 cents to 23 cents.

Analysts had expected earnings of $14.24 billion and an EPS of 32 cents.

Shares of Dell plummeted by $2.70, or 13 percent to $19.40 in morning trading after the news hit the market.

The Round Rock, Texas, computer maker, which also held its annual stockholders meeting today, said in a statement the new estimates "reflect aggressive pricing in a slowing commercial market worldwide."

The shortfall by the No. 1 PC maker doesn't necessarily come as a shock; the company has been dinged in the past year for poor customer service and has watched No. 2 rival HP  gain market share.

Dell CEO Kevin Rollins said during the shareholders' meeting that the company expects to improve its performance by refining its direct sales model.

"The direct model remains our not-so-secret weapon," Rollins said in the meeting, in which investors voiced their concerns about Dell's dipping stock price and took the executives to task for stock repurchasing practices, among other things.

Rollins also said growth outside the U.S. continues to be strong, projecting more than 20 percent growth in Canada, China, Brazil, France and Germany for 2006.

Dell said it will continue to make significant investments in customer service and support, and expects to deliver a "greatly expanded" product line in the second half of the year.

Dell has already taken steps to improve its sales.

Last week, the company pledged to slash its rebate program and promised better information about its bottom-line prices.

Starting in August, U.S. promotions aimed at home and small business consumers will drop by up to 80 percent.

The company plans to reveal Q2 financial results on August 17.

The news comes two months after Dell reported earnings of 33 cents a share on sales of $14.22 billion, 5 cents less per share than analysts expected.

At that time, Dell said it planned to invest "more than $100 million to regain its leadership position in customer experience."

As part of that plan, Dell promised to hire more than 2,000 new sales and support personnel, add or expand call centers in Ottawa, Oklahoma City, Manila and Nashville, and open new manufacturing and design and development facilities.

Dell also said it will use AMD's Opteron processor in certain multi-processor servers due out by the end of this year, a turn of events for a company that has ridden Intel chips to glory.