UPDATE: Dell Warns of Lower Q4 Sales, Profits

SAN FRANCISCO (01/26/2000) - Dell Computer Corp. said today it will report lower-than-expected earnings and revenue for its fourth fiscal quarter ending Jan. 28. The company cited shortages of key semiconductor products and slower-than-expected corporate sales in the wake of the year 2000 date change.

Fourth-quarter earnings will be about US$430 million, or 16 cents per share, including a gain of about 1 cent per share from investments, the Round Rock, Texas-based PC maker said in a release issued today. Analysts had expected the company to report earnings of 21 cents per share, according to First Call/Thomson Financial.

Revenue for the quarter will be about $6.7 billion -- 30 percent higher than the same period a year ago, but again lower than the company had anticipated, Dell said.

Dell is due to announce its fourth-quarter financial results on Feb. 10.

The PC vendor was hit by uneven supplies of some key semiconductor products, which led to about $300 million in lost sales, primarily in recently launched consumer products, Dell said.

In particular, Dell was unable to purchase enough of Intel Corp.'s "Coppermine" processors for desktop PCs, Thomas Meredith, the company's chief financial officer, said in a conference call this afternoon. Coppermines are high-end Pentium III processors than run at clock speeds of up to 800MHz.

While all of the other major PC makers buy processors from both Intel and its main rival, Advanced Micro Devices Inc. (AMD), Dell has remained steadfastly loyal to Intel.

"On the processor side, we are completely Intel at this point," Michael Dell, the company's chairman and chief executive officer, said during today's conference call.

The shortage of Intel processors, which Dell officials said has been largely resolved, won't lead the company to shop elsewhere for its chips, Dell said.

"The transitions we've just gone through were quite challenging for our company and our partners, but I don't think we should take a rash action based on a difficult transition," he said.

In addition, corporate demand for Dell's products in the wake of the year 2000 (Y2K) date change was lower than anticipated, reducing sales by a further $500 million, Dell said. Many IT companies had expected to see sales boosted after the New Year by customers who delayed equipment purchases because of concerns about the impact of the year 2000 problem.

"The bottom line is that we just misjudged the speed with which large corporations would begin their post Y2K spending," said Dell CFO Meredith.

Despite the bad news, Dell said it still expects revenue for the quarter to rise two to three times faster than the rate of the worldwide PC market as a whole.

"While we're clearly disappointed with our operating results, our overall business is healthy and we believe Dell will continue to significantly outpace the revenue and profit growth of our major competitors and of the industry at large," Meredith said in a statement issued earlier today.

For the full year, Dell expects to report revenue of more than $25 billion, which would be an increase of 38 percent over the prior year. Annual earnings are expected to be about $1.8 billion, or 68 cents per share, up 28 percent over prior-year earnings of 53 cents per share.

Dell, in Round Rock, Texas, can be reached at +1-512-338-4400 or http://www.dell.com/.

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