Ahead of the Bell: Dell shares fall on weak 3Q

AP News
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Posted: Nov 20, 2009 8:35 AM

Shares of Dell Inc. fell Friday after it reported weaker-than-expected revenue and profit for the third quarter as the computer maker missed out on a fledgling rebound in technology spending.

The stock was down $1.27, or 8 percent, to $14.60 in premarket trading.

Kaufman Bros. Shaw Wu said Dell's weak quarter was "surprising" and proves that its turnaround attempts weren't working. Acer overtook Dell as the world's second-largest computer maker in the last quarter. Dell said it would rather give up market share than deeply discount to defend its turf.

He noted that Dell's peers, including Apple Inc., Hewlett-Packard Co., IBM Corp. and others have reported strong results.

Wu also took issue with the quality of Dell's earnings per share because of the "sizable" gap between what the company reported that conforms to official accounting principles and its pro forma profit excluding certain one-time items.

Companies issue pro forma earnings to separate out charges and gains that cloud its true operating performance. But it could be used too aggressively to dress up flagging profits.

"One has to wonder if Dell can classify restructuring expenses as one-time items when they keep recurring," Wu said in a research note.

Late Thursday, Dell reported a net income of $337 million, or 17 cents per share, compared with $727 million, or 37 cents a share, in the same period a year ago. Excluding one-time items, Dell posted earnings of 23 cents per share.

Revenue fell 15 percent to $12.9 billion. Analysts polled by Thomson Reuters expected Dell to earn 28 cents per share on $13.2 billion in revenue in the latest quarter.

While Baird analyst Jayson Noland agrees with Dell that companies will start to upgrade their information technology systems next year, he believes that businesses will replace servers before personal computers.

"We expect a broad-based enterprise PC refresh is three or four quarters out," he wrote in a research note.

Both analysts recommend that investors hold off on buying Dell shares for now. Dell is based in Round Rock, Texas.