Dell warning sparks Wall Street sell-off

Dell, the world's biggest maker of computers, issued its third profit warning in a year yesterday, deepening the concern surrounding the company, which said it had slashed prices to try to keep up with rivals.

News of the vicious nature of the price war in PCs and business computers sent shares across the industry tumbling, and Dell itself fell almost 10 per cent to $19.91 on Nasdaq - its lowest level in nearly five years.

The one-time superstar has been losing ground to a resurgent Hewlett-Packard and the cheap Asian manufacturer Lenovo. It has also been suffering from a reputation for poor customer service, and has had to plough money into better call centres.

The effect of cutting prices to win back customers has been to almost halve earnings in the second quarter of the year. Dell said it would post earnings per share of 21-23 cents, compared with 41 cents for the same period last year.

Eric Ross, the technology analyst at ThinkEquity Partners, said Dell's inability to compete on price has been exposed just at the time demand for computers is slowing. "Internally, the company is in disarray. Hewlett-Packard has gone through some very aggressive cost-cutting and can go after lower-margin products at greater profitability," said Mr Ross. "But Dell is so used to winning and to building market share that it hasn't been able to retrench and learn to compete effectively."

Kevin Rollins, Dell's chief executive, told shareholders at its annual meeting in Round Rock, Texas, yesterday that Dell had one of the most impressive long-term growth records in the industry. But he added: "We believe we are on the cusp of another round of industry consolidation and mixed results."