Shares of Dell Inc. (DELL) took a beating after the world's largest personal computer maker warned it will miss its own targets for sales and profits during the first quarter because of "pricing decisions."
Analysts said Dell's move showed that it cannot dodge tough competition and savage price-cutting for personal computers.
Dell said late Monday that it expects a profit of about 33 cents per share in the three months that ended Friday — down from its previous forecast of 36 cents to 38 cents per share. Analysts were expecting 38 cents per share, according to a survey by Thomson Financial.
The Round Rock-based company, which sells computers directly to businesses and consumers, also said first-quarter sales would be about $14.2 billion. It had previously forecast revenue of $14.2 billion to $14.6 billion.
The announcement sent Dell shares tumbling 5.8 percent in extended trading, to a 52-week low of $24.93. They had closed at $26.43, an increase of 75 cents or 2.9 percent during regular trading on the Nasdaq Stock Market.
Dell shares are down nearly 12 percent so far this year.
In a statement, the company said the shortfall in expected earnings was driven "primarily by pricing decisions in the second half of the quarter." During the quarter, Dell aggressively discounted some of its products as it lost ground to rivals.
Chief Executive Kevin Rollins said the company "continued to execute on our strategy to reinvigorate growth by making investments in our support infrastructure and product quality and by accelerating pricing adjustments."
Company officials declined to comment further. Dell will announce first-quarter results on May 18.
Steve Kleynhans, an analyst at META Group, said Dell was being swept up in price-cutting wars among PC makers, especially for low-end machines. He said Dell was hindered by its reliance on computer chips from Intel Corp. (INTC) instead of less-expensive parts from Intel's chief rival in PC microprocessors, Advanced Micro Devices Inc. (AMD).
"We're experiencing a slowdown in the growth of the PC market, and prices are coming down," said Samir Bhavnani, a PC industry analyst with market researcher Current Analysis. "And PC makers, with Dell especially as the biggest one, are paying for pricing decisions they made months ago."
Charles Smulders, vice president of client computing at market-research firm Gartner Inc., agreed that the first-quarter results would put more pressure on Dell to consider AMD as a supplier. He also suggested Dell might try to change investors' expectations about its historically rapid growth.
"There is a mismatch between the financial expectations based on their history, and what the market can deliver in the current pricing environment," Smulders said.
Smulders said Dell is cutting prices to compete and increase revenue, but that won't generate the kind of profit growth that investors have come to expect from Dell.
Stamford, Conn.-based Gartner said Dell saw its share of industry computer shipments decline to 16.5 percent in the first quarter of 2006 from 16.9 percent a year ago. Though Dell shipped 10.2 percent more PCs than it did in last year's first quarter, Gartner said the growth rate was Dell's slowest since the third quarter of 2001.