Dell's sales growth slows

Shares fall $4.25, putting a $1.55 billion dent in chairman's nest egg


May 20, 1999|By BLOOMBERG NEWS

ROUND ROCK, Texas -- Dell Computer Corp. shares fell 9.7 percent yesterday after the biggest direct-seller of personal computers reported its second straight quarter of slowing sales growth.

Shares in Dell fell $4.25 to $39.8125 in trading of 65.1 million shares, making it the most active U.S. stock. The shares are still up 9 percent on the year, while well below the record $55 reached Feb. 1. Yesterday's drop slashed about $1.55 billion off the value of Chairman Michael Dell's holdings.

The company said sales for the first quarter that ended April 30 rose 41 percent, less than the year-ago quarter's increase of 51 percent and slower than the 54 percent growth Dell averaged in the previous eight quarters. Dell also cut prices to boost revenue, which trimmed the company's profit margins more than most analysts predicted.

Worse than expected

"This was a much sharper decline than we had expected," Richard Gardner, an analyst at Salomon Smith Barney who has a "neutral" rating on Dell, wrote in a report.

The company's gross margin, or the percentage of profit left after subtracting production costs, slipped to 21.5 percent from 22.3 percent because of lower prices for its computers.

The average selling price for Dell's PCs and notebooks was $2,300 in the quarter, down slightly from the previous quarter and about 8 percent lower than the year-earlier quarter. Still, the decline was mitigated by lower component prices.

Optimists are disappointed

Dell had warned investors that its gross margin would narrow as it cut prices in the first quarter.

Some analysts expected Dell to roar back from last quarter's slowdown in sales growth with earnings as high as 18 cents and sales of $5.7 billion. Instead, Dell matched First Call Corp. estimates, earning $434 million, or 16 cents a share, on sales of $5.54 billion.

"[Prices] continue to fall, and that puts more pressure on Dell," said Cody Acree, an analyst with Southwest Securities Inc. in Dallas who rates the stock "accumulate."

Pub Date: 5/20/99

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