BUSINESS
Stocks to fall after PC sales warning
05-10-2000
by Paul Drury
Tech stocks worldwide are set to take a fresh hammering after another computer manufacturer issued a warning of slower sales due to weak demand in Europe.
Dell, the world's second largest PC manufacturer, said in a statement issued after close of trading in New York on Wednesday that third quarter sales could be about three percent or USD8.2 billion below what it expected, although profits were still on track.
Fourth-quarter earnings per share could be one to two cents below Wall Street expectations, Dell said. Shares in the company slumped more than 11 percent to a two-year low of USD25.7 after hours.
The warning, which comes after similar statements from Intel and Apple, will inevitably spark further switches into old economy stocks. High oil prices and the poor performance of the Euro have dented consumer confidence at what is normally one of the busiest times of the year for the computer industry.
In its statement, Dell attributed the problems to weak demand in Europe and from small-business customers in the United States. If the weakness persists in the fourth quarter, the company estimates its revenue for the full year will be USD32 billion, up 27 percent from 1999.
Michael S. Dell, the company's chief executive, said he expected the company to continue to outpace its competitors. "The question is not whether Dell will continue to grow, it's at what multiple will we continue to grow relative to the market, and how do we manage that growth," Dell was quoted as saying by the Associated Press.
Dell's growth is, however, slowing sharply. Last year, its sales rose 38 percent, and in 1998, they grew 48 percent.
The company said that profit margins remained firm, even in the face of price cuts, because shortages in important computer components had abated and prices had fallen. And it said that sales to large corporate customers, its most important segment, along with sales to home users remained strong.
Two weeks ago, Intel said that its sales would grow three percent to five percent instead of the 9 percent to 12 percent it had expected. The company mainly blamed the fall of the euro, which has effectively raised prices of computers in Europe by 18 percent so far this year.
On Friday, shares in Apple plunged by more than half after it said that sales were slow in September, a month usually buoyed by back- to-school shopping. Also on Wednesday, Micron Electronics said that its personal computer business grew only five percent in the quarter, below analysts' expectations.
Dell is one of the largest employers in the PC manufacturing industry in Ireland, employing over 3,000 people at a factory it opened in Limerick in 1991 and which has more than doubled its capacity since then. Another Dell operation at Bray, Co Wicklow, provides sales and customer service support to consumer and small to medium businesses in both the UK and Ireland.
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