Dell's Halloween 'Trick' Haunts Investors

Spooked by Dell's(DELL) surprise Halloween announcement lowering its third-quarter financial outlook, investors punished the stock on Tuesday and questioned whether Dell can maintain its historic growth rate as it shifts its aim toward the higher-end PC market.

Monday's announcement marked the second quarter in a row that Dell will fall short of the Street's expectations. Analysts quickly cut their earnings estimates following the news, and a handful of firms, including Bear Stearns, UBS and Moors & Cabot, downgraded their ratings on Dell's stock. In recent trading, Dell's stock was down 9.4%, or $2.98, to $28.90 -- a level not seen since early 2003.

In Dell's post-bell announcement Monday, the Round Rock, Texas company lowered its guidance for its third quarter, citing weaker-than-expected performance at its U.S. and U.K. operations. The computer maker said that it now expects earnings before items of 39 cents a share -- at the low end of its previous guidance range -- and revenue of about $13.9 billion, down from its original guidance of $14.1 billion to $14.5 billion.

Analysts polled by Thomson First Call had been expecting earnings of 40 cents per share on revenue of $14.28 billion. The company also announced that it will take a $450 million charge for the quarter, related to a defective computer component and workforce restructuring.

"The company continues to refocus on higher value products and services while optimizing profitability," Dell said in a statement. The company won't provide further details until it reports third quarter results on Nov. 10.

Analysts pointed to a variety of factors behind Dell's shortfall, ranging from a lack of excitement about the Windows platform to increased competition in China from Lenovo, which recently acquired IBM's(IBM) PC business. But a common theme across the morning's slew of research notes was the notion that Dell's growth rate targets are simply not in line with the reality on the ground.