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Dell says soaring memory prices will ding 3Q earnings

With the technology stock sector already reeling, Dell Computer Corp. (Nasdaq: DELL) poured even more kerosene on the fire Monday by warning that its third-quarter earnings will be lower than expected due to rising memory chip prices.

Company officials said memory prices jumped as much as 25 percent in the quarter, resulting in lower gross profit margins.

First Call consensus was expecting a profit of 20 cents a share in the third quarter.

"We are managing the memory situation carefully and are working to offset the cost increases with efficiencies in other parts of our business," said CEO Thomas Meredith in a prepared release. "We are also taking actions to reduce overall memory consumption, including advertising system configurations with lower amounts of base memory."

Dell shares closed of 1 1/2 to 41 5/16 ahead of the announcement and quickly fell more than $3 a share in after-hours trading.

Dell will annnounce its third-quarter results Nov. 11.

Dell said the memory-cost problem is a short-term issue that would only affect its third-quarter results. Company officials did not specify how much an impact higher memory chip prices would have on the third-quarter results.

During its fall analyst meeting on Oct. 7, Dell had told analysts and reporters that component suppliers affected by last month's earthquake in Taiwan had been quite responsive to Dell's high-volume production requirements, and that the supply situation in that country was progressing well.

But Dell executives cautioned that the pricing and availability for other components was more difficult, particularly for computer memory and liquid-crystal displays (LCDs) used in notebook computers and flat-panel screens.

Last quarter, Dell surged past analysts' estimates, earning $507 million, or 19 cents a share, on sales of $6.14 billion.

Moreover, company officials at the time said the Y2K dilemma wouldn't hamper its sales through the rest of the fiscal year.

Analysts were quick to jump on the bandwagon, raising earnings estimates and upgrading the stock based on Dell's rosy outlook.

At this time last year, Dell shares were trading at 26 5/16. The stock soon scampered up to a 52-week high of 55. In March, the stock split 2-for-1.

Twenty-five of the 34 analysts following the stock maintain either a "buy" or "strong buy" recommendation.

First Call consensus was expecting Dell to return a profit of 76 cents a share in the fiscal year, but expect those estimates to be trimmed in the days and weeks to follow.