Updated from Oct. 31
took down its financial forecast for the third quarter, saying its U.S. and British operations fell short of expectations.
The computer maker said after the bell Monday 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.
Shares of Dell fell more than 6% to $29.84 in early Tuesday trading.
"The company continues to refocus on higher value products and services while optimizing profitability," Dell said in a statement.
Analysts pointed to various factors behind Dell's disappointment. Frugal PC buyers in the U.S., who are opting for bare-bones computers rather than upgrading to more expensive configurations with larger hard drives and more memory, have hurt the company, said Robert W. Baird & Co. analyst Daniel Renouard.
"That's been their bread and butter -- to upsell," said Renouard, who does not have any financial position in the company.
While some tech toys like Apple's iPod and
PlayStation Portable game console are riding a wave of consumer buzz, American Technology Research analyst Shaw Wu said there is much less excitement surrounding the Windows platform -- particularly with Vista, Microsoft's next-version of the operating system not expected for release until late 2006.
However, given macroeconomic trends, like September's 0.5% increase in consumer spending and 1.7% rise in personal income the government reported today, Wu did not see Dell's revenue shortfall as reflecting a more extensive weakness in demand for tech products.
The company also will take a third-quarter charge of roughly $450 million, or 14 cents a share, resulting in EPS of 25 cents for the quarter. More than $300 million is associated with the cost of servicing systems that included a vendor part that failed to perform to Dell's specifications.
Jess Blackburn, a Dell spokesperson, said the problem involved a capacitor on the motherboard of two corporate desktop models -- The OptiPlex GX270 and GX280. According to Blackburn, the defective capacitor prevents systems from booting up. The problem develops months after the systems have shipped and is not universal. As a result, said Blackburn, the $300 million charge is not for a recall, but rather for the labor costs of making replacements in the field.
Blackburn would not name the supplier of the part and said that Dell expects the $300 million charge to cover all future costs associated with the issue.
The charge also includes the costs of a workforce realignment, product rationalizations and excess facilities. "These actions are designed to streamline the business to improve operating efficiency," Dell said.
Even without the charge, Dell will miss analyst expectations by a penny a share -- the second time in a row the company has not matched the Street's expectations.
"Clearly, last quarter was a disappointing quarter for Dell and raised questions about their ability to grow the way they have historically," said Baird's Renouard. "This will do nothing but amplify those questions."