Dell's weak outlook draws price target cuts; shares down

(Reuters) - A host of brokerages cut their price targets on Dell Inc’s shares after the company slashed its full-year outlook as customers delayed buying new computers ahead of the launch of Microsoft Corp’s Windows 8 operating system.

Shares of Round Rock, Texas-based Dell fell 7 percent to a three-week low of $11.43 in morning trading on the Nasdaq.

The No. 2 U.S. PC maker on Tuesday forecast earnings per share of “at least” $1.70 for fiscal 2013, compared with its previous view for more than $2.13.

Dell’s outlook suggests a much softer second half for PCs due to tablet cannibalization even in corporate markets and a pause ahead of Windows 8 in the consumer market, Barclays Capital analyst Ben Reitzes wrote in a research note.

Reitzes said some pent-up consumer demand might be released by the end of the year, but that will be small for Dell.

The accelerating popularity of mobile computing devices such as Apple Inc’s iPad has been eroding PC sales, hurting companies like Dell, who were not able to gain a foothold in the tablet market.

Analysts at BMO Capital Markets do not expect Windows 8 to help PC growth as tablets are growing at a much faster rate than PCs and smartphones are taking a much higher share of consumer spending.

A significant increase in the adoption rate of low-cost netbooks and tablets by consumers is also thwarting Dell’s notebook growth initiatives, RBC Capital Markets analyst Amit Daryanani said.

Dell is also struggling to defend its market share against Asian rivals like Acer Inc and Lenovo Group Ltd.

“Lenovo has been very aggressive in gaining share in BRIC markets, which would make it difficult for Dell to grow revenues in these markets without participating in low-end PC markets,” BMO analyst Keith Bachman said.

Revenue from Brazil, Russia, India and China (BRIC) fell 15 percent in the second quarter for Dell.

Slowing growth in China is also a concern for the company. The world’s No. 2 economy and other emerging markets have long been bright spots for personal computer makers struggling to sustain growth.

Europe’s crisis is expected to curtail PC buying further in the second half of the year.

At least eight brokerages, including RBC and J.P. Morgan Securities, cut their price targets on Dell shares.

Reporting by Chandni Doulatramani in Bangalore; Editing by Joyjeet Das, Maju Samuel