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Dell income declines, HP No. 1 computer maker

02 March, 2007

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BEIJING: Dell reported a sharp decline in income and revenue Thursday in its fourth-quarter financial results, reflecting the computer maker's inability to cash in on the rapidly expanding notebook computer market.

Dell said net income fell by a third, to 673 million U.S. dollars, or 30 cents a share, in its fourth quarter from 1.01 billion dollars, or 43 cents a share, a year earlier.

Revenue fell 5.1 percent, to 14.4 billion dollars, from 15.18 billion dollars a year earlier. The last time revenue declined at Dell was in 2001, in the recession that followed the technology boom.

Wall Street analysts had been expecting Dell to report net income of 29 cents a share for the quarter that ended Feb. 2 even after it had warned in late January that earnings would be lower than analysts expected.

"We are disappointed with the company's results, but what matters is our future plan of action," Michael S. Dell, the chairman and chief executive, said in a statement issued after the markets closed. "We are systematically moving to increase efficiencies, improve execution and transform the company."

Dell said its results were unaudited, preliminary and subject to restatement. It has been trying to straighten out its financial reports while it is being investigated by the Securities and Exchange Commission over an undisclosed accounting issue.

The company, based in Round Rock, Tex., did not provide year-ago comparisons or include balance sheet information in reporting results for the quarter. Dell said its internal investigations into the accounting problems had reduced income by 89 million dollars, or 3 cents a share.

Because the company has failed to file audited results to the S.E.C. for the last three quarters, Nasdaq has threatened to delist it. But Dell said that Nasdaq had given it until May 4 to submit information before taking any action.

Dell also said that the sale of real estate added $36 million, or 1 cent a share, to earnings. The company said it did not pay $184 million in employee bonuses because of its poor performance, which added another 6 cents to earnings.

Wall Street analysts were not expecting a good quarter as evidence mounted that Dell's personal computer sales were flagging. IDC, the technology market analysis firm, reported that Dell's worldwide shipments in the fourth quarter dropped 8.4 percent while the overall market grew 8.7 percent. It also said Hewlett-Packard surpassed Dell as the world's biggest PC maker as Hewlett's shipments grew 23.8 percent in the final three months of 2006.

The problem for Dell was clearly its inability to attract consumers and business customers to its notebook computers. While the overall market for that type of portable computer boomed -- 20 percent growth in the United States alone, according to Gartner, a market analysis firm -- Dell had declining sales. Dell said revenue in the laptop segment fell 2 percent, to 3.8 billion dollars, in the quarter on a 2 percent increase in shipments. Sales of desktop computers, which have slowed for all computer makers, declined 18 percent from a year earlier to 4.6 billion dollars.

In contrast to Dell's troubles, Hewlett-Packard reported last week revenue from personal computers increased 17 percent in the quarter, which included the holiday selling season. Hewlett said its operating profit margins on personal computers, including laptops, increased to 4.7 percent.

Historically, Dell has had operating margins that were higher than any computer maker except Apple because Dell sells computers directly to its customers and does not have to share profit with retailers. But over the last year, those margins have slipped to 5.5 percent from more than 8.2 percent.

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