Dell's Dejection

Shares fall as margins feel the pressure.
Publish date:

Updated from March 1


(DELL) - Get Report

fell 3% early Friday after warning that its financials will remain under pressure for the next several quarters.

With results below already dampened expectations, and amid evidence that even sales of popular notebook PCs are stalling, CEO Michael Dell urged investors to be patient as he tries to revive the company he founded more than 20 years ago.

"We will be known again for strong operating and financial peroframnce and a great experience for our customers," Dell said in a statement. "But it will take time to realize the future benefits of the improvements we are making today."

Sales for the three months ended Feb. 2 slipped 5% from a year ago to $14.4 billion, marking the first year-on-year sales decline since 2001. The results were a half a billion dollars short of Wall Street's dampened expectations, which called for $14.9 billion in sales.

Net income slumped to $673 million, or 30 cents a share, from $1 billion, or 43 cents, at this time last year, a 33% decline. Dell said the EPS got a 6-cent benefit by not paying full employee bonuses and an additional penny from the sale of certain real estate. The ongoing

Securities and Exchange Commission

investigation into Dell's accounting practices reduced EPS by 3 cents.

Dell's operating income in the fourth quarter slipped to 5.5% from 8.2% a year ago.

Analysts polled by Thomson Financial were looking for 29 cents EPS.

Sales of desktop PCs were $1 billion less than at this time a year ago, coming in at $4.6 billion.

And laptop PC sales were flat year over year at $3.8 billion. Worse, notebook revenue was down 2% sequentially during what is supposed to be the best quarter of the year, as consumers snatch up electronics during the holiday shopping season.

By contrast,


(HPQ) - Get Report

notebook revenue surged 20% sequentially in the fourth quarter.

The company did not provide specific guidance for the current quarter but said that growth and margins will remain under pressure for the next several quarters as Dell implements a variety of moves to turn the company around.

Among those are efforts to shorten product development cycles and new approaches to manufacturing and distribution aimed at better serving customers in emerging markets overseas.

"Our business model will be more aligned with the needs of our customers, which will improve their experience and yield improved growth and profitability for the long-term," said Dell.

Since Michael Dell returned to the CEO job in January, he has enlisted a pair of marquee hires to head up the company's global operations and a new global consumer unit.

But the company's decision to skip the typical post-earnings analyst conference call meant investors remained largely in the dark about how Dell aims to get its get back on track.

"I still think they need to do something radical to turn this company around," said American Technology Resarch analyst Shaw Wu, who believes the company needs to experiment with retail sales in addition to its direct sales model.

While Dell noted that international unit shipments exceeded U.S. shipments in the fourth quarter for the first time in company history, much of that growth was in Europe, notes Wu. Analysts believe the PC industry's biggest growth opportunities are in Asia, where Dell has lost several top executives to rival



Dell also didn't provide more color on the ongoing SEC investigation into its accounting practices. That matter has forced Dell to hold off on filing its full quarterly earnings reports, putting its stock at risk of being delisted by



Though Dell was given until March 14 to file its delinquent third-quarter report, the company said Thursday that a special Nasdaq council had stayed any future action to delist its stock pending further review by the council. Dell now has until May 4 to provide any additional information it wishes the council to consider as it completes its review.

Shares of Dell were off 46 cents, or 2% to $22.55 in recent after-hours trading.