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Dell Prices In Pain

The price pressures Dell (DELL) is feeling in its markets are about to show up in its stock.

Shares of the No. 1 PC maker were 8% lower Friday, dragging down much of the technology space, after the company slightly missed Wall Street's second-quarter sales target and offered third-quarter targets below expectations.

Dell said price pressures hurt the second quarter, but the Round Rock, Texas-based company also claimed to gain market share.

"Our strategy is unchanged, and we believe it is the right one for current industry dynamics," said CEO Kevin Rollins during a post-release conference call. He acknowledged pricing pressure on low-end consumer products and sluggish spending by the U.S. federal government.

"I don't think the competitive environment has changed a lot," Rollins said. "The lower [average selling price] was our fault: We got a bit more aggressive than we needed to."

Still, Dell's results spooked technology investors hoping for a glowing report and bullish predictions heading into the strongest part of the year. Intel (INTC - Get Report), the sole microprocessor supplier to Dell, was down 1.5% Friday to $26.43, a one-month low. Applied Materials (AMAT - Get Report), the world's largest maker of chip manufacturing equipment, dropped 0.8% to $17.65.

For the quarter ended July 29, Dell reported net income of $1.02 billion, or 41 cents a share, on sales of $13.4 billion. During the same quarter last year, the company earned $799 million, or 31 cents a share, on sales of $11.71 billion.

Excluding a 3-cent-a-share revision due to a reserve for repatriated taxes, Dell earned 38 cents a share, flat with what the consensus earnings estimate on Wall Street. For sales, analysts had predicted $13.7 billion, on average, according to Thomson First Call.

The tax provision helped lower Dell's tax rate, which in turn helped its bottom line. Dell's tax rate in the quarter was 20.8%, down from 24% in the previous quarter and 26% in the same quarter last year. Also helping the bottom line: Dell spent $1.8 billion to buy back 47 million shares of its stock, below the previous quarter's $2 billion in repurchases.

At the quarter's start, Dell had predicted earnings between 37 cents and 39 cents a share and sales between $13.6 billion and $13.8 billion.
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