Shares of Dell Computer stock dropped 11 percent on Friday -- and dragged down the rest of the stock market -- after the No. 2 computer maker told analysts its fourth-quarter revenue may be less than expected because of heavy competition.
Dell shares (DELL) dropped US$10.81 to $91.06 in late Nasdaq trading.
At least two analysts said the Round Rock, Texas, company will fail to meet the revenue forecasts of Wall Street because of lower-than-expected unit shipments and falling PC prices. Dell is scheduled to report earnings Tuesday.
"We've been cautious about Dell since last quarter," said Alex Mou, junior analyst at BancBoston Robertson Stephens. "Their revenue was a little bit short of expectations but they managed it pretty well." The firm predicts fourth-quarter sales will be $5.2 billion, short of its previous forecast of $5.5 billion.
Mou said Dell had light corporate sales, particularly servers. Unit sales will be 2.2 million instead of the 2.3 million projected earlier.
Robertson Stephens said Dell's shares could fall as low as $80 in the short term.
The forecast dragged down other technology stocks and contributed to the market's concern about slowing earnings in coming months.
Analysts said Dell is facing increasing competition from the likes of Compaq Computer and Hewlett-Packard, which are emulating Dell's manufacture-to-order business model. For the past five years, Dell has been able to undercut its rivals by shipping its PCs only through the mail, eliminating expensive distribution deals with middlemen and retailers.
Dell is also moving into a more competitive environment with a slower growth rate, said Cody Acree, an analyst with Southwest Securities.
"When you have top-line prices falling and component prices firming, you have squeezed profitability."
