Dell quarterly profit falls by about half



Dell Inc. Chairman Michael Dell vowed yesterday to "do better" after the world's biggest personal computer maker posted second-quarter earnings that fell by about half amid a bruising price war with rival Hewlett-Packard Co.

The company also disclosed an informal Securities and Exchange Commission investigation into its accounting - deepening worries that the tech industry juggernaut might be stalling.

As the company slashed prices to spur sales, some customers have complained that Dell also cut back on customer service. And while HP benefited from a recent rebound in retail sales, Dell's direct-sales model - traditionally one of its competitive advantages - hindered its ability to connect with buyers of low-end machines.

"We are clearly disappointed with our financial results," said Dell Chief Executive Officer Kevin Rollins. "We were overly aggressive in a slowing marketplace, and in a situation where component prices didn't come down as we thought."

Dell shares slipped more than 5 percent to $21.60 in after-hours trading after the earnings announcement. They rose 7 cents to $22.80 during regular trading. They have fallen nearly 24 percent this year.

Dell reported a profit of $502 million, or 22 cents a share, compared with $1.0 billion, or 41 cents, during the second quarter last year. Sales rose 5 percent. The result matched analysts' expectations, which they had greatly lowered last month after Dell warned that price cuts would hurt margins. That announcement sent Dell shares down 10 percent, their biggest decline in six years.

Dell also took a hit this week when it recalled 4.1 million laptop batteries that the company said could catch fire, after at least six in the U.S. apparently did. "To recall the batteries was the right thing to do," Rollins said. "We recalled a much larger quantity than the specific incidents would require."

Dell also said it had increased, to $150 million from $100 million, the amount it planned to spend on customer service improvements. The company does not issue financial guidance.

"We're not satisfied with our performance, and we will do better," said Michael Dell, the company's namesake founder who relinquished the CEO title to Rollins in 2004.

The company also disclosed yesterday that the SEC, in August 2005, had sent notice of an informal investigation into Dell regarding accounting issues, and the company began an independent investigation.

"We're not trying to keep this a secret from people," Rollins said after analysts questioned why the company took so long to disclose the year-old investigation.

Chris Gaither writes for the Los Angeles Times.

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