Dell's Sky Darkens
Updated from 1:05 p.m. EDT
Dell's (DELL) rare move of lowering financial targets had investors scrambling on Friday, knocking nearly 8% off the company's share price, as tougher times have suddenly appeared to have set in.
And it's not clear when they'll go away.
Dell was recently down $3.07 to $36.51 on Friday -- its lowest level since early May.Late Thursday, Dell hit its second-quarter earnings-per-share target but missed Wall Street's sales target by $300 million. The company reported net income of 41 cents a share, or 38 cents when excluding a tax provision, and sales of $13.4 billion. The company blamed overly aggressive pricing in the U.S. consumer market and a sound drop-off in spending by the U.S. federal government as the main culprits for the quarter. To the first issue, Dell dropped its prices in the quarter on certain products, expecting to make up for the lost revenue through a commensurate increase in volume. The snapback didn't materialize, and Dell couldn't reach expected sales goals. In effect, consumers weren't willing to spend money on additional products just because prices were lowered. This isn't a good sign heading into the part of the year when the consumer is supposed to be spending heavily for fancy electronics gear and computers. Domestic consumers make up some 10% of Dell's sales. As for federal spending, which makes up close to 20% of Dell's total revenue, Dell said it's been weak for the past year, and the company saw this business slumping more notably in the second quarter. It doesn't anticipate this business coming back in the third quarter. Also troubling: Component pricing isn't expected to decline as much in the third quarter as it did in the second quarter due to tight supplies, which could act as a bit of a squeeze on profits. CEO Kevin Rollins said he was able to get the supplies he needed, but the market is "tighter than it has been for awhile." This, too, is expected to continue in the third quarter. He singled out shortages of some processors and chipsets from Intel (INTC).
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