Dell Warns of Lower-Than-Expected Revenue Growth

Dell Computer has announced that third-quarter revenue appears to be trailing expectations by about 3 percentage points, giving the company a revenue increase of about 7 per cent over the second quarter.

The news, unveiled Wednesday at a fall analyst meeting being held by the Round Rock, Texas-based computer maker, follows similar earnings warnings across the industry in recent weeks.

In a statement, Dell said the lower expectations are due to weak European demand through the first two months of the current quarter and lower-than-expected sales to worldwide small-business customers.

Profit margins remain firm, the company said, and have benefited from lower-than-expected component costs.

Dell stock was down almost 8 per cent in late morning trading Thursday, to $US26 per share. Dell stock has been as high as $US59.68 per share in the past 52 weeks.

If the current sales conditions continue into the fourth quarter, Dell estimates that its full-year revenue could be $US32 billion, an increase of about $US7 billion, or 27 per cent, over sales for the prior year.

Dell said in the statement that sales in the Asia-Pacific market, including Japan, are very strong.

Profit expectations for the third quarter appear to be on track, according to the company, but fourth-quarter per-share earnings could be 1 to 2 cents below company targets.

Lindy Lesperance, an analyst at Technology Business Research Inc. in Hampton, N.H., said part of Dell's problems in Europe is that the company's direct-market approach is still new there.

"Dell is pointing the finger to Europe," Lesperance said. "Europe is a market where Dell is trying to go in strong with a direct [sales] model. But there aren't that many geographies in Europe that are ready for that."

Lesperance said it is likely that the hesitancy to buy over the Internet or the telephone will eventually change in Europe, but it will be gradual.

"Some European customers are very adverse to using their credit cards to buy things online," she said. "In some geographies, it's just a trend that hasn't taken off."

Because the company has "reached a point of saturation" in the Americas, it is looking to Europe, Latin America and Asia-Pacific "for the next drivers for its growth," she said. "But Asia-Pacific and Latin America are still very small pieces of their business, so Europe is a key market to them."

Dell recently reduced retail prices on its computers, reflecting lower component costs, according to the company. Those price reductions are expected to stimulate demand and revenue growth in the fourth quarter of the year.

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