Delay in filing 2nd quarter report is latest problem for Dell

September 12, 2006|By Crayton Harrison | Crayton Harrison,The Dallas Morning News

DALLAS -- Dell Inc.'s latest snag has put yet another dent in the computer giant's once sterling reputation.

The Round Rock, Texas-based company said yesterday that it couldn't yet file its second-quarter report to the Securities and Exchange Commission because of questions raised in an SEC probe of its accounting. Dell also indefinitely postponed a meeting scheduled for tomorrow with Wall Street analysts.

Investor reaction was muted, and the news isn't likely to affect Dell customers. But the fallout from the SEC investigation is one more distraction at a time when Dell can ill afford it, analysts said.

"This is another thing for management to be concerned about. They should be concerned about their fundamentals," said Eric Ross, an analyst at ThinkEquity Partners who has a "sell" rating on Dell shares.

It has been a rocky year for Dell, the world's biggest computer seller. The longtime Wall Street darling used a lean, efficient manufacturing model and a direct sales approach to grow quickly and consistently. But rivals have become nimbler, and Dell's growth has decelerated.

Dell has promised to fight back with pricing adjustments and investments in customer service, but change has come slowly.

In 2006, Dell has twice missed earnings forecasts and announced the recall of 4.1 million laptop batteries, which were found to be capable of bursting into flames.

Reversing a longtime stance, Dell said in May that it could no longer rely on a single supplier for microprocessors, Intel Corp., and introduced models using chips from Advanced Micro Devices Inc.

The company has also discontinued its Ditty line of digital music players.

Its stock is down nearly 30 percent this year as investors worry about slowing growth and the renewed strength of competitors such as Hewlett-Packard Co. Some news reports have speculated about the security of chief executive Kevin Rollins' job, though founder and Chairman Michael Dell has publicly supported Rollins.

Dell disclosed the SEC inquiry last month, saying it had been corresponding with the agency on the matter for about a year. Yesterday, it gave further details.

The inquiry, along with an internal investigation, may have uncovered misstatements in previous quarters related to "accruals, reserves and other balance sheet items," a company news release said.

Dell also disclosed that the U.S. attorney in Manhattan has subpoenaed documents related to the company's financial reporting from 2002 to the present.

The company did not give further specifics on the SEC inquiry. But based on the limited information, analysts said it would probably not uncover anything major. Dell might have to redo some old financial statements so that some accruals or reserves are shifted to different quarters, they said.

Dell investors flinched only a little after the announcement. Shares fell 46 cents, or 2 percent, yesterday to close at $21.19.

But any SEC inquiry is a serious matter that could leave Dell vulnerable to shareholder lawsuits, especially because the company didn't disclose its correspondence with the SEC until last month, Ross said.

Dell executives have said they did not immediately tell investors about the SEC inquiry because the situation did not warrant it.

The company said yesterday that it would file its quarterly report to the SEC as soon as possible. It suspended a share repurchase program until further notice.

Dell postponed the Wall Street meeting because of the filing delay, it said.

"The reason they canceled the securities analyst meeting is that they wouldn't have much to say," said Roger Kay, president of industry research firm Endpoint Technologies Associates. "They'd have to field embarrassing questions without being able to give good answers."

Rollins and Dell are still scheduled to appear in New York today for a meeting with journalists and industry analysts. The agenda focuses on products and strategy, not the company's financial reports.

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