Dell Slides After Cutting Revenue Outlook on Weak IT

Dell Inc's shares fell 9 percent on Wednesday, a day after weak technology spending forced the world's second-largest PC maker to slash its full-year revenue forecast.

Shares of bigger rival Hewlett-Packard, which is due to report results on Thursday, also slipped about 3 percent to $31.72 on the news, on the New York Stock Exchange.

On Tuesday, Dell forecast fiscal 2012 revenue growth at 1-5 percent, down from 5-9 percent, and said weak government and corporate spending may not hold up in the face of flagging economic growth.

Analysts said the lowered outlook was not a surprise, given all the economic uncertainty.

Dell reported better-than-expected margins in the second quarter, but investors focused only on the lowered outlook and worrying comments.

"Dell's shares will likely remain in a trading range near term as investors struggle to weigh better profitability against slower sales growth," RBC Capital Markets wrote in a research note to clients.

The brokerage lowered its price target to $17 from $20, but maintained its "sector perform" rating on the company's stock.

Dell gets three-fourths of its revenue from sales to large enterprises, while Hewlett-Packard gets a little more than half from the same.

But continuing soft sales to consumers have troubled HP, which has a more diversified hardware and services portfolio, over the last several quarters.

In the second quarter, HP cut its profit forecast for the year, saying it needs to invest heavily on hiring and expanding its services division to recover from "missed opportunities" under previous CEO Mark Hurd.

Both the PC giants are venturing out of traditional comfort zones and into higher-margin services as they take on powerful mobile gadgets such as Apple Inc's iPad.

However, BofA Merrill Lynch expects the low investor sentiment on Dell, its cheap valuation and possible gains from an enterprise refresh, will position the shares to outperform in 2011.

The brokerage raised its price target to $18.50 from $18, and maintained its "buy" rating.

Shares of Round Rock, Texas-based Dell fell to $14.36 in morning trade on Nasdaq. Over 45 million shares had traded by 11:00 EDT.