SAN FRANCISCO – Dell Inc. (DELL), the world's No. 1 personal computer maker, Thursday forecast quarterly revenue below market expectations on weakness in U.S. government sales and low-priced consumer PCs, sending its shares tumbling 8 percent.
The disappointing forecast overshadowed a 28 percent increase in second-quarter profit, helped by a surge in U.S. notebook computer demand and market share gains.
The drop in Dell shares was the largest single session decline since September 2001.
Dell Chief Executive Officer Kevin Rollins (search) said its results and the current quarter forecast were hampered by weakness in two U.S. segments — government and the low-end of the consumer PC market, where it had been too aggressive in cutting prices.
"That is taking the edge off of what we were expecting in terms of higher growth rates," Rollins told reporters in a conference call after the quarterly report.
In addition to Dell, shares of Intel Corp. (INTC), which counts Dell as its largest customer, fell by 2 percent in after-hours trade. Dell's comments about a slow government market echoes those made by Cisco Systems Inc. (CSCO), which earlier this week also cited slower federal government spending.
"The guidance is a disappointment," said Cindy Shaw, an analyst at Moors & Cabot Capital Markets. "They're apparently not expecting revenue growth really to pick up."
Dell, based in Round Rock, Texas, forecast revenue growth of 13 percent to 16 percent year over year in the current quarter, lower than the 17 percent growth currently expected by Wall Street analysts, according to Reuters Estimates.
Net income for its fiscal second quarter ended July 29 rose to $1.02 billion, or 41 cents per diluted share, compared with $799 million, or 31 cents, in the year-earlier quarter. Excluding a tax benefit, Dell said it earned 38 cents per share.
Analysts on average were looking for a profit of 38 cents per share, according to Reuters Estimates.
Revenue for the second quarter rose 15 percent to $13.4 billion from $11.7 billion. Analysts were looking for revenue, on average, of $13.71 billion, an increase of 17 percent.
Dell forecast revenue for the current quarter of $14.1 billion to $14.5 billion and earnings per share of 39 cents to 41 cents.
Analysts currently expect Dell to earn 41 cents per share, on average, in the third quarter, on revenue of $14.6 billion, according to Reuters Estimates.
Rollins said that overall pricing in the industry is within historical norms.
"The industry is not experiencing a pricing problem anymore than it has in the past year or two," he said. "The problem of pricing a little more aggressively was our problem."
Rollins said Dell cut prices more aggressively than competitors in order to gain market share, but the number of customers drawn by the offers failed to pick up as much as the company had hoped.
The Dell executive said the company had no plans to stop advertising consumer desktop PCs for as little as $299 and notebook PCs for as low as $499, but he said Dell would more actively encourage consumers attracted by the "hot prices" to buy more expensive PCs.
Shares of Dell fell to $36.84 on the Inet electronic brokerage network after the close of the regular trading session. On the Nasdaq, its shares ended down 15 cents, or less than 1 percent, at $39.58.