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Dell Cites Revenue Below Forecasts

Posted on: Friday, 11 November 2005, 06:00 CST

By Michelle Kessler

SAN FRANCISCO -- Some of tech's biggest, most successful companies are experiencing growing pains.

No. 1 PC-maker Dell reported revenue Thursday that was lower than forecast. Revenue of $13.9 billion in its fiscal third quarter, ended Oct. 28, was up 11% from a year ago. But it was below Dell's earlier estimates of $14.1 billion to $14.5 billion.

Dell warned investors about the numbers last week. Its stock has since fallen 9%.

"We know we can do better. We will," Dell CEO Kevin Rollins said.

But it will be tough for Dell to overcome its biggest problem -- age -- says PC analyst Samir Bhavnani with researcher Current Analysis.

Thanks to years of growth, Dell already dominates lucrative markets such as U.S. business sales, Bhavnani says. The 21-year-old firm has 18% of worldwide PC sales -- far more than any rival.

To keep growing, Dell is moving into new markets, such as high-end PCs for gamers. Still, "The bigger you get, the harder it is to consistently deliver (sales) increases," Bhavnani says.

Other tech giants of Dell's generation have the same problem:

*Microsoft is struggling to sell new copies of software already found on about 95% of PCs. It is also facing new rivals such as Google.

Chairman Bill Gates recently sent employees a memo urging them to "act quickly and decisively" to keep Microsoft strong.

*Intel is hitting the limits of the technology it has used to make computer chips faster for decades. Intel has developed workarounds, such as combining chips to boost speed. But rival Advanced Micro Devices, with only about 20% of the PC processor market, is gaining.

Intel also said Thursday that it plans to buy back up to $25 billion in stock, its largest buyback ever. It is also boosting its quarterly dividend to 10 cents a share.

*Oracle, which has 41% of the worldwide database market, has been gobbling up companies such as PeopleSoft and Siebel Systems that sell complementary products.

No. 1 network-gear maker Cisco Systems, which looms over rivals in its core routing and switch markets, is making acquisitions, too. It is moving into new areas such as home networking.

But Gary Beach, publisher of CIO magazine, says companies should not neglect their most profitable businesses in favor of "forays into marginal markets."

Dell is well-equipped to stay focused, says independent tech analyst Rob Enderle. The company has lower costs than rivals, and posted quarterly profit of $606 million, or 25 cents a share. Still, Dell is staying conservative for the current busy holiday quarter. It predicts earnings per share of 40 to 42 cents, an increase of 8% to 13% from a year ago.

(c) Copyright 2005 USA TODAY, a division of Gannett Co. Inc.

Source: USA TODAY

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