Dell Inc. reported a 51 per cent drop in profit and said securities regulators are conducting an informal investigation related to how it books revenue and other accounting matters.
Shares of the world's largest personal computer maker fell 5.4 per cent in after-hours trading as it revealed that the US Securities and Exchange Commission had informed it in August 2005 of its informal investigation of the company.
Dell Chief Financial Officer Jim Schneider said that while responding to SEC queries, it uncovered a "couple of things" that warranted an additional, internal audit, though it declined to specify what they were.
"You're talking about documents that would fill up a truck," Mr Schneider told reporters on a conference call, referring to the paperwork requested by the SEC.
Dell said it does not believe the issues have had or will have any "material impact" on its financial position. It did not disclose the matter earlier because "we are under no obligation to disclose it," spokesman Jess Blackburn said.
Mr Schneider said the company decided to disclose the review now because more people were becoming involved in the audit. "We felt we can't do this and keep this really quiet," he said. "It would be more appropriate to make some disclosure."
Mr Schneider declined to discuss details of the SEC review or Dell's audit.
Dell also reported a drop in net income in the three months ended August 4 to $502 million, or 22 cents per share, from $1.02 billion, or 41 cents per share, a year earlier. Revenue rose five per cent to $14.1 billion, the slowest growth in at least three years, even though Dell cut prices to boost market share.
Both profit and revenue matched analysts' average forecasts. Dell, in a preliminary earnings announcement on July 21, had said earnings would fall about 30 per cent short of forecasts because of "aggressive pricing" in a slowing market.
Dell has already had a tough week, having announced the biggest electronics recall in US history after faulty Sony Corp. battery cells caused several of its laptops to overheat and burst into flames.
Dell also has had to confront complaints about inferior after-sales service and slowing revenue growth as competitors gain market share.
"Dell is still in a turnaround phase," said Shaw Wu, an analyst with American Technology Research who has a "buy" rating on the stock. "They are taking steps, but I don't know if the steps are enough."
Its fortunes contrast with No. 2 PC maker Hewlett-Packard Co., which reported better-than-expected quarterly profit as it took market share from Dell.
Dell can no longer rely on price advantages from its direct-sales model to trump rivals, analysts said. Dell was "overly aggressive" with prices in a "slowing marketplace," Chief Executive Officer Kevin Rollins said on a conference call. "Component prices did not come down as we anticipated, so we had a margin squeeze."