Dell shares plummet on outlook
NEW YORK – Shares of Dell Inc. plunged to their lowest level in nearly five years Friday after the world’s largest computer maker slashed its second-quarter earnings outlook below Wall Street’s estimates, blaming its aggressive price cutting and a slowing global market.
The sell-off wiped out nearly $5 billion of Dell’s market value in a single day. And even though analysts believe the shortfall is largely a company-specific problem, the news sent shivers through the entire technology sector, with shares of companies that supply parts to computer makers and even Dell’s main rival Hewlett Packard Co. taking hits.
Analysts had been expecting the company to lower its sales outlook, but the resulting profit shortfall surprised investors, who sent the company’s shares down $2.19, or nearly 10 percent, to close at $19.91 on the Nasdaq Stock Market. The last time the stock traded near that price was in 2001.
The company said early Friday it expects fiscal second-quarter earnings between 21 cents and 23 cents a share on sales of about $14 billion, below the earnings of 32 cents a share on sales of $14.2 billion analysts polled by Thomson Financial had expected. The company’s previous outlook was roughly in line with those consensus estimates.
The news highlighted ongoing, company-specific challenges that back the notion that the “Dell era” is over, wrote UBS analyst Benjamin A. Reitzes in a note to clients, keeping a “Hold” rating on the company’s stock.
Dell’s operating margins were already low, so even a seemingly minor revenue shortfall can compress them quite a bit, leading to much lower earnings than a company with strong margins would see, said ThinkEquity analyst Eric M. Ross.
“Internally, the company is in disarray. They are finding it difficult to compete because they are so used to winning,” he said. “It’s taking them more effort to be the low cost, low price provider.”
Reitzes pegged the quarter’s gross margins in the 15 percent to 16 percent range, compared with 17.4 percent last quarter and 18.6 percent in the year-ago period. This, he said, is lower than anyone expected.