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Dell’s profits crash

Amy Scott Jul 21, 2006

KAI RYSSDAL: It’s a fight in the personal computer business. Make no mistake about it. Dell’s announcement today sent shares down to the lowest they’ve been in five years. The company said the gloomy numbers are the result of aggressive pricing in a slowing market. Not a recipe for corporate growth. Dell capped off what’s turning into a rough earnings season for the tech sector. Marketplace’s Amy Scott has more from New York.

AMY SCOTT: At a Dell plant in Austin, Texas, workers stretch in unison before their shift starts. Here workers assemble computers, box them up, and ship them directly to customers. Cutting out the retail middle-man has made Dell a lot of money. But technology analyst Rob Enderle says consumers are heading back to stores like Best Buy. And Dell is losing its competitive edge.

ROB ENDERLE: As we look at products like personal computers, with their inherent complexity, a lot of folks have returned back to wanting to go into a store and actually physically touching and handling a product before they purchase it.

Today’s profit warning puts Dell on track to miss its earnings target for the fifth straight quarter. The company blames the softening market for PCs. Dell’s had to cut prices to compete with rivals like Hewlett-Packard. Others blame Dell itself. Complaints about customer service haven’t helped matters. One analyst described Dell as “in disarray.” Industry watcher Pip Coburn says there’s something going on at the company.

PIP COBURN: They used to get through these periods and now they’re not. So something has changed pretty materially. I think some of it may have to do with the market. But a lot of it has to do with Dell.

Still, many regard Dell’s news as another bad sign for the whole tech industry. Bellwethers like Intel and Advanced Micro Devices posted disappointing results this week. Technology stocks fell overall today as investors pondered an industry slump.

In New York, I’m Amy Scott for Marketplace.

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