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Dell becomes latest to admit revenue is light

The company says revenues will be lower than expected for its third fiscal quarter, joining a cascade of others in recent weeks admitting that business is not growing like they thought it would.

Dell Computer said today that revenues will be lower than expected for its third fiscal quarter, joining a cascade of companies in recent weeks admitting that business is not growing like they thought it would.

The Round Rock, Texas-based company said that revenue will grow only 7 percent over revenues of $7.67 billion in its second fiscal quarter. A month ago, Dell said it expected to see revenue growth for its third quarter reach 10 percent or slightly higher.

The revised figure means that revenue for its third quarter will come to approximately $8.2 billion.

The revenue warning was issued after the markets had closed for the day. In regular trading, Dell shares closed at $28.19, down 38 cents. In after-hours trading the shares dipped to $25.75, according to Island ECN.

Dell's revenue figures for the second quarter also disappointed analysts when they came out in August. Analysts had expected the company to post sales of $7.8 billion for the second quarter.

Dell will report third-quarter earnings Nov. 9.

If demand continues to be lighter than predicted, Dell's full-year revenue could come in at $32 billion, or 27 percent over revenue of $25 billion in the prior fiscal year.

Dell said it remains on track to meet its profit expectations for the third quarter because of declining component costs, although fourth-quarter per-share earnings could be 1 to 2 cents below company targets.

According to First Call/Thomson Financial, the analyst consensus for Dell's third quarter is 25 cents per share. For the fourth quarter, it is 28 cents per share.

Although Dell continues to grow faster than most other PC companies, its current growth rates are close to half of what they were in the company's recent history. Dell recently has seen revenue grow 50 percent every year. Earlier this year, the company's stock took a dip when it said revenue growth would likely slow to around 30 percent.

Like Intel, Dell blamed slow European sales for the shortfall.

"Through the first two months of the current quarter, Dell's European demand has been weak and growth in sales to worldwide small-business customers, though much faster than the industry rate, has been somewhat short of internal plans," the company said in a statement.

"As a result, the company's third-quarter revenue is trending about 3 percent below its expectations--but still toward a healthy 7 percent sequential growth...Demand in other parts of Dell's business--namely from global, large corporate, enterprise, education and home-PC customers, and within Asia-Pacific and Japan--is very strong."

In addition to acknowledging weak European demand, Dell CEO Michael Dell told analysts that Internet-related business sales have also dropped.

"We've seen a significant drop-off in the kind of dot-com arena which had exploded on the scene in Q4 and Q1," Dell told financial and industry analysts at the company's fall analyst conference today in Austin, Texas. Despite the dot-com problems, Dell added, "we're still seeing that small-business sector growing in excess of 30 percent."

Nonetheless, he predicted that the company will continue to grow faster than the industry and will double in size in a few years.

Blind earnings
Since September, several technology companies, including Intel, Apple Computer, SCI Systems, Oracle and now Dell, have warned that demand for computers has been lighter than expected.

Demand began to flatten in August, analysts noted, with the declining euro. The process then accelerated with the European gasoline crisis in early September.

"The rising price of fuel and the (dropping) euro have definitely affected people's ability to spend," Charles Boucher, an analyst with Bear Stearns, said after Intel warned of less-than-spectacular sales late last month.

Dell's problems in Europe tended to be twofold: Dell is just beginning its European push. At the same time, the euro is declining.

"What we've been trying to do is establish a firm foundation before we kind of launch our European team," Dell vice chairman Kevin Rollins told analysts today at the Austin conference.

"We've just got some macroeconomic situations today with the overall industry that are not part of the Dell improvements."

Rollins explained that Dell generally views currency conservatively. "We've not used currency as an excuse for not making operating results. But in this quarter, there has been some impact in the devaluation of the euro," he said.

Slow demand, however, hasn't been confined to overseas markets. U.S. corporate buying has also been sluggish.

"The demand environment through September has been utterly crappy," said Joe Osha, an analyst at Merrill Lynch.

Although many analysts and industry executives believe that demand will pick up in the fourth quarter, a change in economic climate could alter the typical seasonal pattern.

"The big question is, 'Are we going to have a recession environment?'" Osha said.

News.com's Joe Wilcox contributed to this report.