Dell Drubbed by Accounting Probe

A regulatory probe and plunging profits at Dell(DELL Quote) sent shares of the world's top PC maker spiraling lower Friday morning.

Word that second-quarter earnings fell nearly 50% from a year ago no doubt disappointed investors, but they were absolutely blindsided by the revelation that federal investigators are looking into Dell's accounting practices.

Thursday's news about the Securities and Exchange Commission inquiry marks another setback for the company. According to Dell, the company "has discovered information that raises potential issues relating to certain periods prior to fiscal 2006" in the course of responding to SEC requests for information relating to revenue recognition and other accounting matters for past years.

While Dell said it does not believe that these issues will have any material impact on its financial position, the company's audit committee has initiated an independent investigation.

Shares of Dell sank $1.80, or 7.9%, to $21 in heavy trading. The stock had been as low as $20.65.

Dell also announced that it was expanding its relationship with chipmaker Advanced Micro Devices(AMD Quote), with plans to offer desktop PCs using AMD chips next month, and a greater array of corporate servers with AMD chips.

But while the move to use AMD chips addresses a weakness that investors have long clamored for Dell to fix, it was not enough to offset the litany of bad news in the company's quarterly report.

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