Dell Inc. slashed its outlook Friday, warning that quarterly earnings would fall about 30 percent short of forecasts because of a slowdown in the computer market, driving its stock to nearly five-year lows.
Shares of the world’s biggest personal computer maker fell 12 percent after it issued the disappointing outlook, which it blamed on discounting in a softening market for computers. The result, it said, would be second-quarter earnings of 21 cents to 23 cents a share on revenue of about $14 billion.
The company, whose sales have slowed in recent quarters amid tough competition from Hewlett-Packard Co. and complaints about poor after-sale services, had been expected to earn 32 cents a share on revenue of $14.2 billion, according to analysts polled by Reuters Estimates.
“Dell, they are having problems because internally they are in disarray,” said Eric Ross, an analyst at ThinkEquity Partner, who has a “sell” rating on the stock.
“Dell has done an amazing job of growing, but they don’t know how to retrench very well. Inside Dell, they don’t know where to turn,” he said.
Rather than its own problems, Dell pointed to broader industry challenges as the reason for its earnings warning. Analysts said those issues could indeed bite rivals like HP, whose stock fell 3.5 percent.
But they also said any industry troubles would hurt Dell more than others, exacerbating problems that have already caused the company to post disappointing revenue in four straight quarters.
Dell shares recorded their biggest one-day loss in nearly six years on Friday, weighing on Wall Street sentiment. Through Thursday, the shares were already down more than 45 percent in the past 12 months.
Concerns about a company that grew out of a dorm-room start-up by selling directly to customers via the Internet and by telephone are only likely to spread.
“Our take is that Dell’s miss is largely about Dell, although it does add yet another reaffirmation about the state of the commercial PC market, mostly in desktops,” Goldman Sachs analyst Laura Conigliaro said in a report.
Among the major challenges at the Round Rock, Texas, company, Conigliaro pointed to the “absence for Dell of good positioning in notebooks, international, consumer, and retail.” He predicted that its problems “will not reverse quickly.”
In hopes of retaining customers, Dell has cut prices while scaling back on mail-in rebates after complaints that the process for getting the sale price was too complex. It is also spending $100 million to improve customer service, hiring more than 2,000 sales and support staff.
Dell said in a statement on Friday that while it “is seeing positive results and will continue to invest to drive a superior customer experience,” the lowered outlook reflects ”aggressive pricing in a slowing commercial market worldwide.”
A Dell spokesman said “commercial” does not refer to any particular segment of the market -- in other words, it does not point simply to the business or personal computer market. Rather, it indicates the global computer market has slowed.
Earlier this week, technology bellwethers Yahoo Inc. and Intel Corp. reported disappointing earnings, triggering some investor concern about a sector-wide slump.
Google Inc.and Microsoft Corp.helped turn around sentiment on Thursday, with more upbeat quarterly announcements. Dell’s warning could undo some of the optimism provided by Google and Microsoft, analysts said.
“Certainly, you have to be surprised by the level of the earnings warning in this case, but it’s certainly not a good indication for the economy or for the stock market, at least today,” said Tim Ghriskey, chief investment officer at Solaris Asset Management.
“This is another black eye on technology this quarter, and we’ve seen a number of companies report earnings issues during this period,” he added.
Dell shares fell $2.76 to $19.34 in midmorning trade, while HP shares fell $1.11 to $30.69. The losses weighed on both the Nasdaq and the Dow Jones industrial average.