Dell Shares Hit New Year Low On Tech Spending Concerns
05/23/2012| 02:50pm US/Eastern
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--Dell shares hit lowest point since Sept. 2010 on concerns about competition and spending on tech
--Dell's results also dragging down rival Hewlett-Packard, other big tech names
--Concerns about economy, sales growth seen lingering
(Updates with additional details throughout)
By John Kell and Ian Sherr
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Dell Inc. (>> Dell Inc.) shares fell as much as 18% Wednesday to their lowest point in 20 months after the company's quarterly update raised questions about the strength of computer sales, overall spending on technology and the company's ability to make its business grow.
Dell, which in recent years has looked to move beyond its core personal-computer business and broaden its own portfolio of products for corporate customers, is facing stiff competition across its business lines. Executives conceded Tuesday that spending on desktops and notebooks has remained under pressure, and that it was struggling against its competition.
Brian Gladden, the company's chief financial officer, said that in response to the "challenging competitive environment," the company was reworking its sales force. "We have to execute better," he said.
Analysts agreed. "We still believe Dell needs to take bolder, more aggressive steps to reinvent itself," wrote Sterne Agee analyst Shaw Wu. Overall, Dell's profit in the latest quarter missed Wall Street's expectations and the company issued a downbeat top-line outlook for the current quarter.
Dell shares recently fell 18%, to $12.35 and are the biggest percentage decliner on the S&P 500. The stock's low Wednesday of $12.31 is its worst point since September 2010, and the percentage decline is its largest intraday drop since November 2000.
The results are also weighing on shares of Hewlett-Packard Co. (>> Hewlett-Packard Company), which is likely to outline plans to lay off as many as 30,000 workers when it reports earnings Wednesday. H-P shares recently fell 4.7%, to $20.76, after earlier setting a seven-year low at $20.57.
Wu noted that Dell is in a tough position with PCs as it is sandwiched between low-cost players, such as Lenovo Group Ltd. (0992.HK, LNVGY) and Acer Inc. (2353.TW, ACEIY).
In addition, Dell said that consumers were putting off computer purchases, and instead focusing their attention on mobile devices, such as Apple Inc.'s (>> Apple Inc.) iPhone and iPad touchscreen tablet. In the latest quarter, Dell's revenue from desktop PCs slipped 0.8%, after rising in the prior quarter.
Faced with soft PC sales, Dell has been attempting to boost both its revenue and profit by acquiring higher-margin businesses, including data-storage, security and networking technologies. Those acquisitions include Perot Systems, Force10 Networks and more recently Wyse and SonicWall. But despite efforts to grow beyond the PC business with multiple acquisitions in recent years, Sterne Agee estimates 70% to 75% of its business is still tied to PCs.
Dell's large enterprise revenue dropped 3%, driven by weakness in developed markets as some customers delayed their tech purchases. Dell hired sales specialists last year to help bolster the enterprise business, though Chief Commercial Officer Stephen Felice told analysts on Tuesday the company had more to do to improve execution. But, the company insisted that sales were being delayed, not lost.
The company's comments about customers delaying tech purchases, echo similar comments from network-equipment maker Cisco Systems Inc. (>> Cisco Systems, Inc.) earlier this month.
Cisco's shares slid about 1%, to $16.58 in recent trading, and the stock has dropped 17.8% in May. Other tech names seemingly affected by Dell's comments on tech spending and a slowdown in computer sales include Microsoft Corp. (>> Microsoft Corporation), off 3%, to $28.88; NetApp Inc. (NTAP), down 3.6%, to $32.10; and EMC Corp. (>> EMC Corporation), falling 1.9%, to $25.10.
For now, concerns about the economy and Dell's sales growth could weigh on Dell's performance for the next few quarters, said Mizuho Securities, which trimmed its stock rating on Dell to neutral and cut the price target to $15 from $20. The bank said it would remain on the sidelines "until we see consistent execution by the company."
-By John Kell and Ian Sherr, Dow Jones Newswires; 212-416-2480; john.kell@dowjones.com
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