(AP) Dell shares hit their lowest point in more than three and a half years Friday on concerns about its ability to quickly transition away from the declining PC market.
THE SPARK: Dell reported third-quarter earnings and revenue that were worse than expectations, even for investors who were braced for a dismal quarter.
Revenue dropped 11 percent to $13.72 billion, below the $13.89 billion expected by analysts polled by FactSet. Net income fell 47 percent to $475 million, or 27 cents per share. Excluding certain expenses and accounting charges, adjusted earnings came to 39 cents per share, a penny below estimates.
Its outlook for the fourth quarter is for revenue to fall by as much as 13 percent from a year ago. If the forecast bears out, it would be the fourth consecutive quarter in which Dell's year-over-year revenue decline has gotten worse. The forecast for revenue between $14 billion and $14.4 billion was below the $14.5 billion analysts were looking for.
THE BIG PICTURE: About two-thirds of Dell's business is estimated to be tied to the sale of PCs, while consumers and businesses are increasingly looking for products such as lightweight tablets and mobile devices to replace laptops.
THE ANALYSIS: Cowen & Co. analyst Matthew Hoffman said that sales continue to be pressured by competition from tablets, smartphones and macroeconomic weakness. He said that Microsoft Corp.'s new operating system, Windows 8, is unlikely to lift Dell out of its predicament.
We believe Dell's PC issues are unlikely to be solved by the Windows 8 launch as the market's structure has fundamentally shifted away from the paradigm that dominated the last two decades, he wrote in a research note.
Sterne Agee analyst Shaw Wu said in a research note that the transformation of the company beyond PCs is harder and taking much longer than expected.
We still believe Dell needs to take bolder, more aggressive steps to reinvent itself, he wrote.
SHARE ACTION: Dell Inc. fell 63 cents, or 6.6 percent, at $8.93 in midday trading Friday after having fallen as low as $8.69. That was the lowest price the shares have reached since March 2009 when they dipped to $8.13. Since the start of the year, Dell shares have fallen by 39 percent.