Dell reported on Nov. 19 that sales sank 15 percent and net income tumbled 54 percent in its fiscal third quarter, which ended Oct. 30. What's more, Chief Executive Michael Dell suggested during a conference call after the results that businesses would take more time than previously expected to replace old computers with newer models running Microsoft 's new Windows 7 operating system . "It won't all occur at once," he said.

The remarks contrasted with the CEO's contention in August that the PC industry would enter a "powerful product cycle" in 2010 that would benefit Dell. Wall Street "is going to feel like Michael Dell backed off a little bit on his comments on the replacement cycle," says one securities analyst, who asked not to be named since he hadn't yet published a research report on the quarter. "People are not going to like that." Dell's results look especially disappointing in light of a positive earnings report issued by rival Hewlett-Packard on Nov. 11.

Widespread Weakness

Investors sold Dell stock in extended trading after the earnings report was released. The shares fell 6 percent. At the end of regular trading Nov. 19, Dell's stock closed down 19 percent, or 1.2 percent, at 15.87. Shares of Dell have risen 55 percent so far in 2009, but that run could be ending. "If you're trying to invest for six months, it's not a great place to be," says Jayson Noland, a senior analyst at investment firm Robert W. Baird, who has a neutral rating on Dell. "It's a cheap stock, but I don't see any near-term catalyst" that might keep the rally alive, he said.

Dell said third-quarter sales were $12.9 billion, and net income was $337 million, or 23 percent a share after excluding certain one-time items. Wall Street analysts had expected Dell to earn 28 percent a share on sales of $13.1 billion. Weakness was spread across Dell's businesses, as sales to large companies declined 23 percent from a year earlier, sales to small and midsize companies were down 19 percent, and consumer revenue declined 10 percent. (continued...)

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