Dell shares slip amid supply worries

By Duncan Martell

SAN FRANCISCO (Reuters) - Dell Inc. (DELL.O) shares shed as much as 3 percent on Tuesday amid concerns that industrywide constraints on some display screen components and production issues with the paint on some of its notebook PC lines could delay the delivery of new machines.

"We believe there are industry-wide supply constraints but what matters is each customer gets the equipment they ordered as quickly as possible," Dell spokesman Bob Pearson said. "All our energy is on reducing backlog and delivering product as soon as we can."

Earlier this month a Dell executive wrote on a corporate blog that the Round Rock, Texas-based No. 2 PC maker was having trouble with the paint on its XPS M1330 and Inspiron lines.

"We think components are tight for many manufacturers, but we believe that companies such as HP have made strategic inventory purchases to try to avoid shortfalls," said Cross Research analyst Shannon Cross, adding that Dell tends to run at lower inventory levels due to its build-to-order business model.

Dell recently added specialized colors and other design features to its line-up to boost its consumer PC business, which has lagged in comparison to that of larger rival Hewlett-Packard Co (HPQ.N).

The notebook segment of the PC market is the industry's fastest growing and accounted for nearly 30 percent of Dell's $14.6 billion in revenue in its most recent quarter.

"Right now, Tuxedo Black is the only color that is consistently meeting our quality standards," Alex Gruzen, a senior vice president in Dell's consumer products group, wrote on August 3 on the Dell blog. "That's one reason why some customers are getting their orders before others."

Gruzen wrote that there was "no problem painting hundreds at a time. But as we increased the volume, otherwise manageable factors like dust contamination caused our successful yields to decrease."

Dell last week said it would restate four years of financial results, reducing net income for the period by as much as $150 million, after a lengthy audit found that top executives sought accounting adjustments to hit quarterly performance goals.

The restatement, affecting a fraction of the billions of dollars Dell earned in the period, was greeted at the time with relief by analysts, who had expected more serious consequences.

The audit's conclusion comes as Dell, which lost the top PC market-share ranking to HP in 2006, is revamping its consumer unit and cutting 10 percent of its work force to focus on its fastest-growing and most-profitable businesses.

Founder Michael Dell returned as chief executive in January, replacing his protege Kevin Rollins, and changed top managers to stoke growth and boost profits.

Dell's shares lost 33 cents, or 1.2 percent, to $26.20. Earlier, they fell as low as $25.71. So far this year, the stock is up nearly 4 percent, compared with a 12 percent increase in shares of HP.