Dell's Shock Profit Warning Sends Technology Sector Reeling

Dell, the world's largest maker of personal computers, yesterday warned that its quarterly profits will be well below Wall Street's expectations as it battles against intense competition from second-placed Hewlett-Packard, China's Lenovo and even a resurgent Apple Computer.

Shares in the company, which pioneered the direct-selling of PCs through the internet and by telephone, suffered its biggest one-day fall in six years and the news sent technology stocks reeling across the world. Dell's results have already disappointed investors over the past four straight financial quarters, but yesterday's statement was a shock. It blamed "aggressive pricing in a slowing commercial market worldwide" for news that its second quarter profits will be 21 cents to 23 cents a share, compared with the 32 cents US investors predicted.

The warning follows poor results earlier in the week from US chip-maker Intel and internet portal Yahoo!, which raised concerns that technology is heading for another potentially damaging slowdown. Their downbeat comments offset strong results from Google and Apple, which has been grabbing market share in laptops with its faster machines.

Then late on Thursday, another US microchip manufacturer, Advanced Micro Devices (AMD), announced quarterly earnings that were also below what Wall Street had expected. Coincidentally, Dell recently started buying chips from AMD to widen its range of products.

Dell, which has suffered a spate of complaints about its customer service, is pumping $100m (£53m) into hiring 2,000 more sales and support staff.

In the US, Dell's largest market, shipments were unchanged against the previous quarter, according to figures from industry experts IDC. In fact, the first three months of this year marked the first ever flat quarter. In the second three months of 2006 it managed to increase shipments by more than 6% - but Hewlett-Packard saw its rise by 16%. "Internally, the company is in disarray," said ThinkEquity analyst Eric Ross. "They are finding it difficult to compete because they are so used to winning. It's taking them more effort to be the low-cost, low-price provider."

Dell, based in Round Rock, Texas, held its annual shareholders meeting yesterday, marking the second anniversary of the accession of its chief executive, Kevin Rollins. He took over from founder Michael Dell who started selling computers from his room at the University of Texas in Austin when he was a student in the 1980s.