New setback for Dell as SEC investigates

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The Independent Online

Dell, the world's biggest manufacturer of computers, has admitted that the Wall Street regulator is investigating its accounting policies, piling on another set of woes for its long-suffering shareholders.

The company, which is recalling more than 4 million laptop batteries because they are prone to catching fire, revealed the Securities and Exchange Commission investigation alongside results showing that profits had halved in the past three months.

The SEC first asked for information on the company's accounting policies a year ago, Dell admitted, but it had kept the investigation secret because it was "informal" and did not indicate any wrongdoing. However, new information has recently prompted the board to appoint outside investigators of its own.

"The SEC has requested information relating to revenue recognition and other accounting and financial reporting matters for certain past fiscal years, and Dell has been co-operating," it said. "In the course of responding to the requests, the company recently discovered information that raises potential issues relating to certain periods prior to 2006."

Dell shares fell sharply in after-hours trading after the admission, but Kevin Rollins, the chief executive, sought to play down the likelihood that the SEC will find any wrongdoing. He said: "The SEC's informal letter doesn't suggest any violation of the law. There are hundreds of those letters that go out. I don't believe it will have any impact on the historical financials of the company, but we are going to have an independent audit just to make sure we are safe."

Mr Rollins also responded to criticism over the time it took to recall the dangerous laptop batteries - the biggest recall in the electronics industry. Stories of explosions and fires had been circulating on the internet for several weeks before Dell issued its statement this week. "We needed a little time to announce the recall in a responsible manner and be able to be set up for it."

Analysts have estimated that the recall could cost up to $400m (£212m). Most of that is likely to be shouldered by Sony, which supplies the batteries to Dell, but there are concerns that the bad publicity could hit Dell's sales.

Dell's market-share growth has already stalled in the US as rivals such as Hewlett-Packard cut their prices. Dell's response - to slash its own prices - has failed to reignite its sales performance. As a result, profits in the three months to 4 August were $502m, down 51 per cent on the same period last year.

Dell shares were last night close to their lowest levels since 2001. Mr Rollins brushed off suggestions that his position was under threat, and refused to discuss speculation that Michael Dell, the chairman and founder, could return to take day-to-day control.