The third quarter of 2005 looks like it could be one of the worst operating periods for Dell in several years. The company has announced that it will fall short of its own revenue guidance for the quarter on lower-than-expected sales, and take a $US450 million charge to replace broken Optiplex desktops and restructure its workforce.
Dell now expects revenue for the company's third quarter, which ended last Friday, to be about $US13.9 billion. In August, Dell predicted third-quarter revenue would fall between $US14.1 billion and $14.5 billion. The shortfall was due to missed sales targets in the company's US consumer business and its UK business, according to a company spokesperson. He declined to specify exactly what portion of Dell's business was affected.
This will be the second straight quarter that Dell has missed its goals for quarterly revenue.
CEO, Kevin Rollins, said the problem last quarter was the company failed to convince customers to upgrade cheaper desktops to more profitable systems.
Dell will have to take a $US300 million charge in the third quarter to account for the cost of replacing motherboards on some of the company's GX270 and GX280 Optiplex desktop PCs, the spokesperson said.
In some cases, the capacitors on those two models can fail, preventing the systems from being turned on, he said.
Dell is not recalling the units, Blackburn said.
Instead, the company would send field service technicians out to customers whose systems have failed in order to replace the motherboards, he said.
There was no safety risk or potential loss of data as a result of the problems with the capacitors, Blackburn said. Optiplex customers can contact Dell for more information.
The remainder of the $US450 million charge will cover the cost of ending leases on certain Dell facilities in and around the company's Round Rock, Texas, headquarters, excess parts for systems which the company does not believe it can sell, and some layoffs, Blackburn said.
Dell, known throughout the technology industry for its aggressive inventory management practices, is not commenting on the nature of the excess parts. Similarly, it is not revealing how many workers lost their jobs. Most of the affected workers had been located in Texas or the UK, the spokesperson said.
Dell will report earnings on November 10, when Rollins will share more information about the conditions that led to company's poor third-quarter results.