Dell to fall short of Q1 goal

Under market-share pressure from Hewlett-Packard Co. (HP), Dell Inc. warned Monday that it would miss its forecast for quarterly profits and barely match its lowest estimate for revenue.

Dell now expects revenue of US$14.2 billion, versus its original estimate of $14.2 to $14.6 billion. That would lead to earnings of $0.33 per share, compared to its goal of $0.36 to $0.38. The company is scheduled to release its quarterly earnings on May 18.

The company attributed the shortfall to a decision to cut prices and sell more computers. That strategy will produce a revenue dip in the second half of the first quarter, but generate strong growth in the future, said chief executive officer Kevin Rollins in a statement.

Traders, however, pushed Dell shares down to a three-year low on Tuesday, falling midday $1.16 to $25.27.

“You can’t continuously gain share by discounting,” said Richard Doherty, research director with The Envisioneering Group in Seaford, New York.

It’s true that Dell still holds the highest market share, but that leverage is useless unless Dell maintains its profit margins.

“Dell is still the market leader, but so is McDonald’s, and Wolfgang Puck makes a lot more money,” he said.

Despite the revenue dip, Dell, of Round Rock, Texas, will maintain its position as the largest PC vendor in the world, judging by the number of computers shipped in the first quarter, according to numbers compiled by IDC analysts.

Dell’s 18.1 percent market share is closely followed by HP with 16.4 percent share; all other vendors are in single digits. But HP is gaining fast, posting growth of 22.2 percent comparing its shipments in the first quarter of 2006 with the previous year, far more than Dell’s increase of 10.2 percent.

The difference is even greater in the U.S., where HP grew at 15.8 percent compared to Dell’s growth of 0.3 percent.

Some market watchers saw this coming. Richard Gardner with Citigroup had downgraded Dell to “sell” from “buy” in his April 21 report.