Dell Warns of Lower Earnings

Despite raking in millions of dollars a day through its e-commerce operations, online PC sales giant Dell Computer Corp. announced yesterday that its earnings and revenue will fall short of expectations for the second quarter in a row.

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

Meanwhile, shares of the company closed down 1 3/4 to 40 3/8 ahead of the warning, which was issued after the market closed. However, Dell’s shares slid to 38 in after-hours trading.

This news comes only days after it was reported that the Round Rock, Texas-based firm had topped rival Compaq Computer Corp. in U.S. PC sales for the first time ever, according to data from both Dataquest and International Data Corp.

According to IDC, Dell is now generating $30 million a day in PC sales. IDC added that selling PCs to consumers via the Internet has become a more effective method than selling via traditional brick-and-mortar stores.

Chip Shortage and Y2K Fears

The e-commerce giant said its fourth-quarter revenue will be about $6.7 billion, about $800 million below expectations, but up 30 percent from $5.17 billion in the same quarter a year ago. Dell expects to report results February 10th.

Dell noted that chip shortages cost the company $300 million in lost sales, even though revenue from its worldwide consumer and small-business segment is expected to be 50 percent higher than last year.

Additionally, the company said that fears about Y2K cost it another $500 million in expected revenue, but added that its corporate and institutional sales are still expected to rise more than 20 percent.

Conversely, Compaq reported a 56 percent decline in its fourth quarter earnings on Tuesday. Meanwhile, another competitor, Gateway, Inc., also blamed its disappointing quarterly results on a business slowdown and chip shortages.

Could Spark Sell Off

Many industry analysts are predicting that Dell’s warning will spark a major sell-off in PC stocks today, causing a wholesale review of PC valuations.

Nonetheless, Dell points out that some of its problems were caused by its strategy of using the latest technology, which some suppliers have had trouble delivering.

Dell’s fourth-quarter results will also be adversely affected by a one-time charge associated with Dell’s purchase of ConvergeNet Technologies, Inc.