Troubles continue for Dell

SAN FRANCISCO - Computer maker Dell today reported a 51 per cent drop in profit and said securities regulators are conducting an informal investigation related to revenue recognition and other accounting matters.

Shares of the world's largest personal computer maker fell 4.8 per cent in after-hours trading. Dell said the US Securities and Exchange Commission told it in August 2005, that it was conducting an informal investigation of the company.

Dell said it does not believe the issues have had or will have any "material impact" on its financial position. It did not disclose the matter earlier because "we are under no obligation to disclose it," spokesman Jess Blackburn said.

Dell announced the SEC review as it reported a drop in net income for the three months ended August 4 to US$502 million, or 22 cents per share, from US$1.02 billion, or 41 cents per share, a year earlier. Revenue rose 5 per cent to US$14.1 billion, the slowest growth in at least three years, even though Dell cut prices to boost market share.

Analysts, on average, had forecast profit of 22 cents per share on revenue of US$14 billion. Dell, in a preliminary earnings announcement on July 21, said earnings would fall about 30 per cent short of forecasts because of "aggressive pricing" in a slowing commercial market.

News of the SEC review is the latest blow to Dell, which this week announced the biggest electronics recall in US history after faulty Sony battery cells caused several of its laptops to overheat and burst into flames.

Dell, led by Chief Executive Kevin Rollins, also has had to confront complaints about inferior after-sales service and slowing revenue growth as competitors gain market share.

"Dell is still in a turnaround phase," said Shaw Wu, an analyst with American Technology Research who has a "buy" rating on the stock. "They are taking steps, but I don't know if the steps are enough."

Its fortunes contrast with No. 2 PC maker Hewlett-Packard, which on Wednesday reported better-than-expected quarterly profit as it took market share from Dell.

Dell can no longer rely on price advantages from its direct-sales model to trump rivals and is struggling to improve its battered image, analysts said.

Dell decided to disclose the SEC review now because, in the process of answering the SEC's questions, the company uncovered "a couple of things" that warranted an additional, internal audit, Chief Financial Officer Jim Schneider told reporters.

"You're talking about documents that would fill up a truck," Schneider said on a conference call, referring to the volume of paperwork requested by the SEC.

Dell's stock, down 40 per cent in the past 12 months, trades at about the same multiple to expected per-share earnings as Hewlett-Packard, whose stock is up 41 per cent in that period.

Dell also said it would launch Dimension consumer desktop PCs with Advanced Micro Devices microprocessors next month, extending a relationship with AMD unveiled in May.

Dell said three months ago it would end a 22-year exclusive relationship with No. 1 semiconductor maker Intel Corp.