Dell 4Q Earnings, Revenues Drop

Dell Inc.'s fourth-quarter profits plunged 33 percent because of weak sales of laptops and notebooks, and the computer maker still faces an unresolved federal accounting probe, customer service complaints, several shareholder lawsuits and stiff competition from rivals.

But amid another disappointing quarter, analysts said Dell at least appears ready to do something about its many problems, even if it takes years to resolve.

Dell said it earned $673 million, or 30 cents per share, in the quarter ended Feb. 2, compared with $1.01 billion, or 43 cents per share, a year earlier. Revenue fell 4 percent to $14.4 billion.

Analysts had expected the PC maker to earn 29 cents per share in the most recent quarter, according to a survey by Thomson Financial. The company didn't provide year-ago figures in its release.

Most glaring was the revenue shortfall in mobility products and desktop PCs, which combined account for 58 percent of Dell's revenue.

Mobility products, which includes notebook computers, fell 2 percent to $3.8 billion despite a 2 percent increase in units shipped. Desktop PCs, meanwhile, saw an 18 percent decline in units year-over-year -- despite the launch of Microsoft Corp.'s new Vista operating system.

Analysts speculated that Dell's direct-sales model, which allows business and consumers to buy equipment directly from the company, is no longer the best way to sell products, especially portable, personal devices like notebooks.

Shifting tastes mean many consumers want to pick up and examine notebooks before they buy one, analyst Tim Bajarin of Creative Strategies said.

Just look at rivals like Apple Inc. and Hewlett-Packard Co., which during the same period saw robust sales of laptops because of good marketing and widespread retail availability, Bajarin said.

"I do believe Dell's going to have to be much more creative in reaching out to new customers who traditionally would only look at retail," he said.

Dell's results, issued in the form of a press release, outlined several turnaround plans, including streamlining operations, shortening product development cycles and developing new approaches to manufacturing and distribution.

While lacking specifics, Dell's willingness to at least mention some changes was encouraging, said Carmi Levy, senior research analyst with Info-Tech Research Group.

"It's a matter of going into new businesses, trying to compete beyond the core hardware market," he said. "But these are things that do not change overnight, these are yearslong strategies."

In January, Michael Dell resumed control of the company he founded as chairman and chief executive officer. He replaced his hand-picked successor, Kevin Rollins, who stepped down in January.

His first action has been to revamp his top executive team, luring top corporate executives from Motorola Inc. and Solectron Corp. in recent weeks. In December, Dell replaced its chief financial officer with Donald Carty, the former chief executive of AMR Corp., parent of American Airlines.

Meanwhile, Dell has yet to resolve an accounting investigation led by the Securities and Exchange Commission.

The U.S. attorney for the Southern District of New York has also subpoenaed documents related to Dell's financial reporting from 2002 to the present.

It means Dell's earnings statements from the second, third and fourth quarters are preliminary and have yet to be filed with the SEC.

Dell said he was working as quickly as possible to resolve its many problems but did not offer any time frame.

"We won't achieve our goals overnight, but we will achieve our goals," Dell said in a release. "We will be known again for strong operating and financial performance and a great experience for our customers. But it will take time to realize the future benefits of the improvements we are making today."

Roger Kay, president of Endpoint Technologies Associates Inc., said he was concerned about the myriad issues Dell faces. But he said like other large companies that have faced tough times, it should be able to turn things around eventually.

"The fact that they can't say when it's going to get any better, those things are not very reassuring," Kay said. "But it doesn't mean that they won't get it back together. I have a lot of faith that they're going to pull it together over time."

Dell shares rose 16 cents to $23.17 in morning trading Friday on the Nasdaq Stock Market, where they have ranged from $18.95 to $30.80 in the past year.


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