Computer hardware stocks have been dragged into negative territory Friday morning after Dell Inc. (DELL) reported a bigger than expected drop in second quarter earnings.
Shares of Dell posted the biggest loss in the sector, down about 12%. Meanwhile, shares of EMC Corp. (EMC) and Seagate Technology (STX) also posted notable losses, down about 2% each.
Around 10:40 am Eastern Time, Dell stock was down $3.09 to $22.12 a share, while EMC shares were down 41 cents at $15.32 and Seagate stock was down 34 cents at $15.03.
Other stocks on the downside include Cisco Systems Inc. (CSCO), NCR Corp. (NCR) and Xerox Corp. (XRX).
Dell said on Thursday after the markets closed that its second quarter earnings fell 17% from last year, as strategic investments to drive long-term growth impacted profitability. The company's quarterly earnings per share also came in below analysts' expectations. At the same time, the company warned that the slowdown in IT spending has extended into Western Europe and several countries in Asia.
The company reported net income for the second quarter of $616 million or $0.31 per share, compared to $746 million or $0.33 per share for the year-ago quarter.
During the most recent quarter, the company incurred $52 million in restructuring and amortization costs, equal to $0.02 per share.
On average, 24 analysts polled by First Call / Thomson Financial expected the company to earn $0.36 per share for the second quarter.
Gross margin for the second quarter fell to 17.2% from 19.9% a year ago, while operating margin slipped to 5.0% from 6.1% last year.
Gross margins in the quarter were adversely affected by actions to drive growth in strategic areas like Global Consumer and Europe Middle East and Africa as well as an increase in deferred revenue from the sale of successful service offerings in that region, Dell said in a statement.
Dell CFO Brian Gladden said, "Strategic actions to accelerate growth in certain areas of our business affected gross margins this quarter and there will be some non-linearity in the improvements in our operating income margins as we rebalance our portfolio, make cost improvements and drive growth."
Revenue for the second quarter increased 11% to $16.43 billion from $14.78 billion in the same quarter last year. Twenty-two analysts had a consensus revenue estimate of $15.95 billion for the second quarter.
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