SAN MATEO (01/28/2000) - When Dell Computer Corp. told investors last week to brace for lower-than-expected earnings and revenue for its fourth fiscal quarter, ending Jan. 28, the company blamed key shortages from chip maker Intel as being primarily responsible for Dell's slow sales.
Specifically, Dell was unable to purchase enough of Intel's Coppermine-class Pentium III processors for its desktop PCs, according to Intel CFO Thomas Meredith.
While all other major PC makers buy processors from both Intel and its main rival, AMD, Dell has remained steadfastly loyal to Intel. Such loyalty caused the PC maker to be hit by uneven supplies from Intel, which led to about $300 million in lost sales.
"On the processor side, we are completely Intel at this point," said Michael Dell, the chairman and CEO of Dell Computer. "The transitions we've just gone through were quite challenging for our company and our partners, but I don't think we should take rash action based on a difficult transition," he said, emphasizing that Dell would not begin shopping elsewhere.
Earlier this month, Intel's inability to fill orders from Gateway for Celeron processors cost the computer maker nearly $250 million in their last quarter, Gateway CFO John Todd said.
At precisely the same time, Bob Nitzberg, retail notebook marketing manager at Hewlett-Packard, hinted at the Consumer Electronics Show in Las Vegas that supply problems from Intel were behind HP's decision to put AMD K6 processors in its new Pavilion N3200 mobile line.
"We usually predict market demand and can move inventory if demand swells from one OEM," said Howard High, a spokesman for Intel. "We just got hit from all sides at the end of last year."
"Intel had enough processors to supply their orders," said Roger Kay, an analyst at International Data Corp., in Framingham, Mass. "What they didn't do was anticipate a fourth quarter rush."
Dell Computer Corp., in Austin, Texas, is at www.dell.com. Intel Corp., in Santa Clara, Calif., is at www.intel.com.
James Niccolai is a San Francisco-based senior U.S. correspondent for IDG News Service, an InfoWorld affiliate.
Dell's 1999 fourth quarter earnings
* Expected: 21 cents per share (according to First Call)* Reported: Earnings of $430 million, or 16 cents per share, with a gain of 1 cent per share from investments* Overall revenue for the quarter: $6.7 billion, or 30 percent higher than the same time period one year ago