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Dell Warns of Profit, Sales Slump

January 26, 2000

AUSTIN, Texas (AP) _ Dell Computer Corp., the largest domestic seller of personal computers, warned Wednesday that parts shortages and slower customer demand due to Y2K concerns will push its profit and sales below expectations in the current quarter.

Investors bid down shares of Dell in after-hours trading following the afternoon announcement, the latest cautionary note from the technology industry. Dell was trading as low as $36 a share, compared to its close of $40.37 1/2, down $1.75, in regular trading Wednesday on the Nasdaq Stock Market.

Dell, echoing an earlier warning by rival Gateway Inc., said sales were slow to rebound from a spending slowdown by corporate customers busy fixing Y2K bugs, and from an inconsistent flow of computer chips, which made it tough to fill orders.

Complete results for Dell’s fiscal fourth quarter, which ends Friday, are due out Feb. 10.

Dell added to a series of lackluster announcements by major high-tech companies, including a profit drop announced last week by IBM. Gateway Inc., the second-largest direct seller of computers after Dell, also warned early this month that its fourth-quarter profit would miss expectations. Direct sellers of computers are especially vulnerable to supply shortfalls because they warehouse few parts and instead rely on steady supplies from chip makers.

``Dell is, in the end, only able to sell as many computers as it can get parts for,″ said Joe Osha, an analyst with Merrill Lynch & Co. in New York.

Unit volumes should grow more than 30 percent from the year-ago quarter, and 50 percent from the previous quarter.

Dell expects to report revenue of about $6.7 billion for the fourth quarter, up 30 percent from the prior-year period. Dell expects to earn about $430 million, or 16 cents per share. The consensus of analysts’ earnings estimates for the quarter was 21 cents per share.

For the full year, Dell expects revenue of more than $25 billion, an increase of 38 percent over the prior year. Annual earnings are expected to be about $1.8 billion, or 68 cents per share, up 28 percent over prior-year earnings of 53 cents per share.

``While we’re clearly disappointed with our operating results, our overall business is healthy and we believe Dell will continue to significantly outpace the revenue and profit growth of our major competitors and of the industry at large,″ said Tom Meredith, Dell’s chief financial officer.

It’s the second-straight quarter for which Dell reported lower-than-expected earnings.

In October, Dell said a higher-than-expected jump in the price of computer memory chips, due to an earthquake in Taiwan, hurt its third-quarter profit.

A snagged supply of semiconductor components during the quarter caused $300 million in lost sales, primarily of newly introduced consumer products, Dell said.

But Dell expects revenue from the worldwide consumer and small-business segment to still be more than 50 percent higher than the prior-year quarter.

Although Dell expects corporate sales to increase more than 20 percent from the fourth quarter last year, fewer customers than expected purchased from Dell following the 2000 date change, reducing expected revenue by about $500 million.

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