Aug 17, 2006 8:53 pm US/Pacific
Dell Posts 51 Pct. Decline Amid Probe
DALLAS (AP) ―
Computer maker Dell Inc. posted a 51 percent decline in net earnings for its second quarter Thursday and said regulators were investigating its accounting. The company's shares fell in after-hours trading.
The company also announced an expanded partnership to put Advanced Micro Devices Inc. computer chips into a new line of servers and desktop PCs as early as next month.
Dell's profits fell to $502 million in the second quarter from $1.02 billion in the same period a year ago.
This week the company also recalled 4.1 million potentially flammable batteries supplied by Sony Corp. for laptop computers.
Dell said it was cooperating with an informal investigation by the Securities and Exchange Commission over accounting and financial reporting. Dell said it did not believe there were any issues but was conducting its own internal investigation.
The results and the SEC probe were announced after the close of regular stock trading on the Nasdaq Stock Market. Dell's shares slumped $1.25 or 5.5 percent to $21.55 in after-market trading.
CEO Kevin Rollins said Dell received a letter from the SEC in August of 2005 "asking us about a fairly broad level of questions on some revenue recognition."
"We're complying with that informal investigation," Rollins said. "That's about all we know. We don't think there are going to be any issues that are material that we're going to have to worry about."
Dell, which slashed its second-quarter outlook last month, reported earnings of 22 cents per share on sales of $14.1 billion, which were up 5 percent from a year ago. The company had originally forecast earnings of 32 cents per share on sales of $14.2 billion.
However, the results met the lowered expectations of analysts polled by Thomson Financial. In the same period a year ago, Dell had earnings of 38 cents per a share on sales of $13.4 billion.
Rollins said several factors were to blame, mainly overly aggressive pricing, a slowing marketplace and component prices that weren't lowering as expected.
On Monday, Dell and the Consumer Product Safety Commission announced the agency's largest-ever electronics recall for lithium-ion batteries on notebooks sold between April 1, 2004, and July 18 of this year.
The problem, which has resulted in smoke and fires but no injuries, appears to be with the battery cell maker Sony and hasn't affected other manufacturers like main rival Hewlett-Packard Co.
In sharp contrast to Dell, Hewlett-Packard Co. on Wednesday posted third-quarter profit that beat expectations while raising its guidance for the upcoming period.
Dell didn't provide an estimate for the recall's cost but said it won't materially affect the company's financial results, suggesting that Sony will bear the brunt of the cost. Analysts' estimated the recall could run $200 million to $400 million.
In its last earnings report in May, Dell said it would start using AMD processors for specialized computer servers used mainly by large businesses. It ended a long-standing exclusive relationship between the computer maker and Intel, AMD's chief rival.
Under Thursday's announcement, Dell will offer Dimension desktop PCs with AMD Athlon processors net month, and several new server models using AMD Opteron chips by the end of the year.
(© 2006 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)
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