Dell sees U.S. PC market finding its low point

Dell said Tuesday that the U.S. personal computer market has reached its low point but that the timing of a global turnaround in the technology industry remains anyone's guess.

Investors sent shares plummeting $1, or 7.7%, to $12.02 in midday trading.

At a meeting with Wall Street analysts, the world's No. 2 PC maker elaborated on guidance it issued Monday, when it said it expects slightly stronger sales in the current quarter than in the last one. Despite these signs of improvement, Dell executives said Tuesday that many of the conditions that hurt the PC industry over the last several quarters aren't easing.

Businesses have clamped down on technology spending and put off new computer purchases as the economic crisis persists. Consumers are more eager to buy new computers but are choosing cheaper models such as "netbooks."

"Certainly customers are elongating the life cycle" of their machines, Chief Executive Officer Michael Dell said.

The CEO said he expects a wave of replacements for aging computers to come in 2010. By then Microsoft will have released its next operating system, Windows 7.

For now Dell, which is based in Round Rock, Texas, and trails Hewlett-Packard in worldwide PC sales, is advising analysts that improvement in its business still varies significantly by region and product type.

Chief Financial Officer Brian Gladden said U.S. sales are "not necessarily getting a lot better," but they're "finding a bottom" in the quarter that ends July 31.

China is pushing revenue in Asia higher and Latin American sales appear to be improving, but Western Europe is weak and even deteriorating, Gladden said.

Worldwide sales to large and small businesses alike are "still very weak," similar to the first quarter, when Dell saw revenue overall sink 23% to $12.3 billion.

The division that sells to educational institutions and the government is picking up, Gladden said, as schools prepare for the upcoming academic year, and Dell's consumer PC business is also expected to post better sales than in the first quarter.

Michael Dell told analysts that his company is chasing higher profits rather than increased market share in the consumer PC business, which has slim margins.

In the short term, at least, Dell may struggle on both counts. Gladden said higher costs for LCD screens and memory are cutting into Dell's profits and will continue for at least three more months. The company is also having to slash prices just to maintain its market share in some areas.

"That's a bit of a new dynamic," Gladden said.

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