Dell sales warning sparks tech fears

 

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By Barry Collins and Reuters

Posted on 17 Sep 2008 at 08:19

Dell has warned its shareholders of weakening demand, adding to worries that the credit crunch will hurt corporate and consumer spending.

Dell and fellow US computer retailer, Ingram Micro, became the first two technology companies to warn investors since a series of financial shocks in recent days. Lehman Brothers collapsed, Merrill Lynch is being taken over, and insurer American International Group is fighting for its survival.

"It sounds like things are really starting to slip everywhere," warns Cross Research analyst Shannon Cross. "Both consumer and corporate end-demand are slowing. The question is how long it lasts."

"Dell and others in the industry have exposure to the financials, and that impacted them," she adds. "When you see these failures on Wall Street and the concerns that people have about banks, I think it does cause people to pull back a little on their spending."

Dell shares fell 11% following its warning. Other tech stocks that ended lower include computer memory chip maker Micron Technology, which fell 7.8%, and storage maker Seagate, which fell 8.2%.

One bright spot was HP, whose shares jumped 6.8%, but only after it announced almost 25,000 job losses to save costs from its purchase of computer services provider EDS.

HP, the world's biggest PC maker, says it's "very confident" the company can hit its current-quarter profit target and struck a generally positive note - in sharp contrast with smaller rival Dell's talk of a broad slowdown.

Dell foresees a further softening in global end-user demand in the current quarter, with demand not rebounding in September as it normally does following the summer lull. "This is not coming back the way we expected it to," says Dell's chief financial officer, Brian Gladden.

Storage maker, Seagate, claims poor visibility about where the economy is heading is causing people to pull back spending plans. "Right now people are uncertain about the credit (market), are uncertain about oil prices," says Seagate chief executive, Bill Watkins.

Dell is "much more in tune to small businesses - that's where it sells a lot of its stuff - and I'm sure that market is tough," he says.