Dell Issues Profit Warning; Cites Intel, Y2K - InformationWeek

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Dell Issues Profit Warning; Cites Intel, Y2K

Dell Computer on Wednesday blamed Intel and Y2K for what itsays will be a revenue shortfall that will cause it to significantly miss fourth-quarter earnings estimates.

Wall Street analysts surveyed by First Call were expecting the computer maker to post earnings of 21 cents per share when it reports its results on Feb. 10. But CFO Thomas Meredith warned that the company expects to report per-share earnings of only 16 cents. Dell's share price fell 4-3/8 to 36 in after-hours trading.

Meredith says an "inconsistent flow of key semiconductor components" from Intel--specifically Pentium III Coppermine chips--cost the company $300 million in fourth-quarter revenue. "We lost sales because we were unable to deliver in volume during the peak selling season," Meredith says.

Analysts say Dell's build-to-order model makes it more vulnerable to supply constraints than most of its competitors. "They operate with very low inventories," says Lindy Lesperance, who follows the company for Technology Business Research.

Dell is the second major PC manufacturer in recent weeks to publicly criticize Intel's ability to meet demand. On Jan. 5, Gateway CFO John Todd said "spotty and unreliable" supply from the chipmaker would cause his company to miss fourth- quarter estimates. Within days, Gateway announced that it would begin using Athlon chips from Intel rival Advanced Micro Devices Inc. in its top-of-the-line desktops. Dell is the only major computer maker that does not use AMD chips in at least some of its product line.

Dell's Thompson also said Wednesday that the Y2K slowdown would cost his company $500 million in fourth-quarter revenue. "We misjudged the speed" at which large corporations would end their millennial lockdowns, he said. Last week, IBM said customers' Y2K concerns were to blame for a fourth-quarter in which its profit fell 11%

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