Dell profit down sharply

SAN FRANCISCO (Reuters) - Dell Inc., the world's second-largest personal computer maker, reported on Thursday a sharply lower quarterly profit while revenue fell short of Wall Street expectations, sending its shares down 1.7 percent.

Dell sees pressure on growth and profit margins in the next several quarters as it spends money to revamp its business, and Chief Executive Michael Dell called the latest results "disappointing."

The company lost market share to Hewlett-Packard Co. in the fourth quarter and in January, founder Michael Dell replaced Kevin Rollins as CEO following a string of disappointing earnings reports, slowing growth and complaints about poor customer service.

It lags HP in the fast-growing markets of notebook computers, consumer PCs and printers.

"Things could get worse before they get better," said Brent Bracelin, an analyst at Pacific Crest Securities who has a "sector perform" rating on Dell shares, saying the company was in the midst of a turnaround.

Dell, which for three years had been the world's top seller of personal computers, last year lost that ranking to HP as HP Chief Executive Mark Hurd cut prices and boosted sales of consumer PCs. Dell gets about 85 percent of its revenue from corporate customers, a slower-growing segment than consumers.

Net income for Dell's fiscal fourth quarter to February 2 was $673 million, or 30 cents per share, and revenue was $14.4 billion. Dell a year ago reported net income of $1.01 billion, or 43 cents per share, and revenue of $15.2 billion, though those figures are subject to restatement due to pending reviews of Dell's past accounting.

The reported profit topped a Wall Street consensus of 28 cents. But excluding a 6 cent-per-share gain due to Dell not paying bonuses, and adding items including a 1 cent gain from the sale of real estate, Dell earned 26 cents per share, according to Reuters Estimates.

Analysts, on average, had forecast fourth-quarter revenue of $14.7 billion, according to Reuters Estimates. Dell said in January it would likely miss what Wall Street had been forecasting for the fourth quarter at the time.

Dell described Thursday's report as preliminary since it is reviewing past accounting and may restate results. The company said last year the U.S. Securities and Exchange Commission and federal prosecutors were investigating its accounting.

DELL LOSS IS HP GAIN

Round Rock, Texas-based Dell reported $4.6 billion in fourth-quarter revenue from desktop PCs, an 18 percent drop from $5.6 billion reported a year ago. Dell's revenue from notebook computers, one of HP's fastest-growing segments, was flat at $3.8 billion compared to the year-earlier quarter.

"Where they lost, HP gained," said Shaw Wu, an analyst at American Technology Research, who has "neutral" ratings on Dell and HP shares and does not own any. "The mobile segment is particularly bad" at Dell.

Dell shares fell to $22.60 in extended trading after the earnings report, after closing up 0.7 percent at $23.01.

"We are disappointed with the company's results, but what matters is our future plan of action," Michael Dell said in a statement. "We won't achieve our goals overnight, but we will achieve our goals."

Dell said it aims to "strengthen its management team, unify business units and eliminate redundancies."

Since taking over on January 31, Michael Dell has been assembling a new top management team that includes Motorola Inc.'s former mobile-phone unit head, Ron Garriques, and former Solectron Corp. CEO Michael Cannon.

Dell, 42, has cut the number executives reporting directly to him to 12 from 20 as he tries to tackle what he described in a February 2 email to employees as "a new enemy: bureaucracy, which costs us money and slows us down."

Garriques oversees a new global consumer unit and Cannon is in charge of revamping the supply chain, which includes design, manufacturing and distribution of Dell's products.

Dell's stock is down 22 percent in the past 12 months compared with HP's 16 percent gain. Dell trades at 17.7 times estimated fiscal 2008 earnings per share compared with the average multiple of 14.8 for companies on the S&P 500 index.