Dell's strategy questioned as shares dive

(Reuters) - Shares of Dell Inc plunged 17 percent Wednesday after a disappointing revenue forecast spurred fears that global tech spending is weakening faster than anticipated and raised doubts about the PC maker's strategy.

The stock plunge erased more than $4 billion in the company's market cap.

Rival PC maker Lenovo Group Ltd <0992.HK>, which reported results overnight that benefited from its dominance in the rapidly expanding Chinese market, fueled concerns after warning that it too saw a slowdown in U.S. and European corporate spending on PCs.

Shares of global leader Hewlett Packard Co closed 3.2 percent lower at $21.08 on expectations the company would announce a restructuring and sweeping layoffs after the market closed. HP said late Wednesday it would lay off about 27,000 employees or 8 percent of its workforce as it eyed more than $3 billion in savings.

The accelerating popularity of mobile computing devices such as Apple Inc's iPad has been eroding PC sales for years. To combat the erosion in sales to consumers, as well as dwindling margins as companies compete on price, Dell and HP have been gradually focusing more on sales to large enterprises.

Dell has been diversifying its revenue base in the face of weakened consumer demand, giving up low-margin sales to consumers and moving into higher-margin areas, such as catering to the technology needs of small and medium businesses in the public sector and the healthcare industry.

The company now finds itself lagging larger rivals like HP and IBM in the race to become one-stop shops for corporate IT needs.

Shebly Seyrafi, analyst with FBN Securities, said it was a "tough call" whether Dell's diversification strategy is working.

"The revenue slide does raise doubts about their strategy," Seyrafi said, adding that it appears Dell is waiting for the launch of Microsoft's Windows 8 software that will help it become a stronger player on the tablet market.

"It's all bit of wait and see," he said.

Also, many analysts now see this transition, which Dell began a few years ago, as a lengthy process.

"While we think that Dell's story of improving mix is still valid, it will take a long time to play out," said BMO Capital Markets analyst Keith Bachman.

Dell shares have lost half their value since the high-profile return of founder Michael Dell to the company's helm in January 2007. His return was hailed as pivotal in regaining the market share ceded to an aggressive HP in the preceding years, but in five years Dell has continued losing ground, especially in the consumer arena, to HP and Lenovo.

RUSH TO CUT

Once the world's top PC maker and a mainstay of business-school case studies, Dell has been losing market share and now vies with Asian PC makers like Lenovo.

Lenovo can rely on China to propel revenue growth and boost its bottom line. The company commands more than half of the world's second-largest personal computer market.

"IT demand softened unexpectedly in the month of April," Raymond James analyst Brian Alexander wrote. "While Dell walked away from business as the quarter progressed, it initially took more deals that did not meet its profit objectives."

Dell shares closed 17.2 percent lower at $12.49 on the Nasdaq. Earlier in the day, it forecast revenue of $14.7 billion to $15 billion in the current quarter, well short of analysts' average forecast of $15.4 billion.

Wall Street brokers, including RBC, Jefferies and Evercore, cut their price target on Dell shares.

A cautious IT spending environment and challenges in its PC business will keep dogging Dell in fiscal 2013, BMO Capital Markets analyst Jung Pak wrote in a research report, cutting the price target on the stock to $16 from $18.

Analyst Rob Cihra of Evercore Partners said Dell may be forced to cut prices in order to boost revenue.

"We think Dell continues to walk away from just too much business in the name of margin stability," Cihra said in a research note.

"We just don't see how Dell can keep trying to avoid competitive pricing," he added, noting that the company will otherwise have a hard time differentiating its computers, which like rivals' products are based on Intel Corp chips and Microsoft Corp software.

Dell's first-quarter earnings and revenue were also lower than expected, hurt by weak sales to consumers, large enterprises and government units.

"The non-PC transformation is not big enough yet to absorb acute pains in PCs," said JPMorgan Securities analyst Mark Moskowitz, who cut his price target to $19 from $21.

(Reporting by Poornima Gupta in San Francisco, Supantha Mukherjee in Bangalore and Sinead Carew in New York; Editing by Edwin Chan, Joyjeet Das, John Wallace and Matthew Lewis)

Facebook shares stabilizing, but probes mount

NEW YORK (AP) — Facebook's initial public offering is the subject of two congressional inquiries and mounting lawsuits as the social network enters its fifth day of public trading on Thursday.

The shares regained some ground Wednesday, climbing $1, or 3.2 percent, to close at $32. But that gave shareholders only minor relief.

The stock's rocky inaugural trading day Friday was followed by a two-day decline, and it's still trading nearly 16 percent below its $38 IPO price.

The launch was tarnished by a half-hour delay on Friday, caused by glitches on the Nasdaq Stock Market. It was marred further this week as investors began accusing the banks that arranged the IPO of sharing important information about Facebook's business prospects with some clients and not others.

Several shareholders who bought stock in the IPO have filed lawsuits against Facebook, its executives and Morgan Stanley, the IPO's lead underwriter. At question is whether analysts at the big underwriter investment banks cut their second-quarter and full-year forecasts for Facebook just before the IPO, and told only a handful of clients about it.

One lawsuit, filed in U.S. District Court in New York, claims Facebook's IPO documents contained untrue statements and omitted important facts, such as a "severe reduction in revenue growth" that Facebook was experiencing at the time of the offering. The suit's three plaintiffs, who bought Facebook stock on its first day of trading May 18, claim they were damaged in the process.

Morgan Stanley declined to comment. Facebook said the lawsuit is without merit.

Another lawsuit, filed in San Mateo County Superior Court in California, claims Facebook and underwriters misled investors in Facebook's IPO documents. Both lawsuits seek class action status on behalf of investors who bought Facebook stock and lost money on Friday.

"No one gets it perfect, as far as saying what the financial results are," said Anthony Michael Sabino, professor at St. John's University's Peter J. Tobin College of Business. The bottom line, he added, is whether Facebook or the underwriter had material information about Facebook's finances that was not disclosed publicly.

"At this moment, it's still too early to say," Sabino said. "We don't know enough, but this could turn out to be an issue."

What is known is that, in March, Facebook began meeting with analysts at the underwriting firms. The gatherings are a customary part of the IPO process and are designed to help analysts understand the company's business so they can make accurate financial projections.

On May 9, the third day of Facebook's pre-IPO roadshow to meet with prospective investors, the company filed an amended IPO document that said its number of mobile users was growing faster than its revenue.

According to a person familiar with the matter, Facebook then had another meeting with analysts and told them that based on the new information in the filings, the analysts' forecasts should be at the low end of the range that the company gave them in April. The person spoke on the condition of anonymity because they were not publicly authorized to discuss the matter.

Adding to Wednesday's events, Facebook was in talks with the New York Stock Exchange to move its stock from the Nasdaq Stock Market after the botched offering, according to a person familiar with the matter.

The person spoke on the condition of anonymity because they were not authorized to speak publicly. The news of the talks was first reported by Reuters.

NYSE spokesman Rich Adamonis said: "There have been no discussions with Facebook regarding switching their listing in light of the events of the last week, nor do we think a discussion along those lines would be appropriate at this time."

A Nasdaq spokesman declined to comment.

Sen. Tim Johnson, D-S.D., chairman of the Senate Banking Committee, said late Wednesday that his panel wants to learn more about the social network's initial offering. The committee seeks briefings with Facebook representatives, regulatory agencies and others.

After the briefings, Johnson said, he will determine whether a hearing should be held.

Also gathering information about Facebook's IPO is the House Financial Services Committee. An aide to that panel said its staff is getting briefings.

The subject is likely to be raised in hearings by the committee in the coming weeks, even though no hearings are planned specifically on the Facebook IPO, the aide said. The aide spoke on condition of anonymity because the House committee's planned inquiry hasn't been publicly announced.