After Dell's Warning: Analysts Up, Shares Down
- 27 January, 2000 12:01
NEW YORK (01/27/2000) - In the wake of Dell Computer Corp.'s warning yesterday regarding fourth-quarter earnings, several investment brokerages actually raised their recommendations on the company's stock. The brokerages' endorsements of the company, however, were not enough to prevent the value of Dell shares from slipping during extremely heavy trading today.
Dell said it would report lower-than-expected profit and revenue for its fourth fiscal quarter, ending Jan. 28. Shortages of key semiconductor products and disappointing corporate sales in the aftermath of year 2000 date-change preparations were key factors in the lower-than-expected quarter, Dell officials said. [See "UPDATE: Dell Warns of Lower Q4 Sales, Profits," Jan. 26.]In response, Piper Jaffray, the investment brokerage unit of U.S. Bancorp, issued a report, "An Ounce of Reality Is Better Than a Pound of Fantasy." This report stated that now that Dell has recalibrated expectations to a realistic level, the company can post results that are at the top of forecasts, which will result in strong support for its stock.
Piper believes that Dell's resetting of expectations does not indicate weakening fundamentals or a deteriorating, larger economic environment for PC makers, according to Piper analyst Ashok Kumar in a written statement. Other analysts pointed out that PC manufacturers need to keep inventory levels at a minimum to stay competitive. Chip supply shortages will thus tend to have greater ripple effects than in the past, but this issue is now a normal part of doing business in today's PC environment, industry analysts said.
Though by midday two brokerages lowered their investment recommendation on Dell, at least four investment firms -- including Merrill Lynch & Co., Piper Jaffray, Robertson Stephens and Hambrecht & Quist -- upgraded their recommendations, and Salomon Smith Barney reiterated its buy rating, according to the Dow Jones news service.
Despite the vote of confidence from the analysts, however, Dell shares were trading at US$38 toward the end of the trading day, down $2.34 from yesterday's close.
Dell, in Round Rock, Texas, can be reached at +1-512-338-4400 or http://www.dell.com/.