Citing Higher Costs for Memory Chips, Dell Says Earnings Won't Meet Expectations

Dell Computer (DELL Quote) warned Wall Street investors late today that its third-quarter operating results will fail to meet expectations.

The computer systems company attributed the projected earnings shortfall to higher prices for memory chips.

Dell's disclosure came well over an hour after the stock market closed, but investors still punished the stock tonight, sending it down about 3 1/2 in after-hours trading. Earlier, the stock ended regular Nasdaq trading down 1 7/16 at 41 5/16.

The shortfall should not be a complete surprise for Wall Street, as analysts who follow Dell had said earlier this month that Dell might suffer financially because the Taiwan earthquake in September could disrupt supplies of needed components.

But Dell officials said this evening that its problems were unrelated to the earthquake and that suppliers in Taiwan had been responsive to Dell's needs.

Dell said the prices for memory chips are increasing more sharply than they expected, by as much as 25 percent.

Company officials said the cost increases are a "short-term matter, but one that would be felt on fiscal third-quarter operations margins" to be announced Nov. 11. Analysts surveyed by First Call/Thomson Financial had been expecting the company to earn 20 cents a share.

"We are managing the memory situation carefully and are working to offset the cost increases with efficiencies in other parts of the business," Thomas Meredith, Dell's chief financial officer, said in a statement.

This is the first time Dell has pre-announced since 1993, according to a Dell spokesman.

Dell has also been concerned about the availability and rising prices of other components, particularly liquid-crystal displays, which are used in notebook computers and flat-panel screens. But last week, Dell announced it had signed a five-year supply agreement with Samsung Electronics to provide it with a long-term supply of displays.