Shares plunge as Dell issues profit warning

22 Jul 2006

Computer giant Dell, which employs close to 5,000 people in Ireland, suffered its worst decline in the stock market in six years as stock plunged 9pc after the company issued a warning that sales and earnings would fall short of Wall Street estimates for the second quarter.

The company said yesterday that it expects fiscal second-quarter earnings between 21 cents and 23 cents per share on sales of about $14bn, below the earnings of 32 cents per share on sales of $14.2bn that analysts had predicted.

The sell-off of Dell stock wiped some US$5bn off the company’s market value in a single day. Dell’s market capitalisation now stands at $45.2bn. The company’s chairman and founder Michael Dell (pictured), the company’s largest shareholder with a 10.8pc stake, saw his holdings drop by US$540.5m.

Dell chief executive Kevin Rollins, now at the end of his second year in the post, yesterday warned that “aggressive pricing” and a much tougher competitive landscape filled with lower cost rivals led to a drop in sales growth.

In particular, global number two computer manufacturer HP and China’s Lenovo Group undercut Dell’s pricing during the quarter, hitting Dell where it hurts the most – its ability to drive prices lower than competitors through smarter supply chain management and selling directly to customer.

Dell’s worldwide PC shipments grew about 11pc in the second quarter, according to research firms IDC and Gartner. However, other manufacturers saw faster growth, and as a result Dell’s global market remained more or less static.

By John Kennedy