Sept. 16 (Bloomberg) -- Dell Inc., fighting Hewlett-Packard Co. for computer sales as the economy slows, dropped to its lowest level in 10 years after predicting ``further softening'' in demand this quarter.

A technology slump that started in the U.S. last quarter spread to Western Europe and some Asian countries, Dell said today, reiterating comments made last month. Small and mid-size businesses, along with local and state government customers, have slowed their orders, Chief Financial Officer Brian Gladden said at a Bank of America investment conference in San Francisco.

``It is not coming back the way we thought it would,'' Gladden said. ``We saw a very weak August.''

Dell, the No. 2 personal-computer maker, is struggling to keep up with industry leader Hewlett-Packard, which has topped analysts' earnings estimates and posted profit margins that are 5 percentage points higher than Dell's. Chief Executive Officer Michael Dell has pledged to cut up to $3 billion in annual costs by eliminating employees and moving to lower-cost manufacturers.

``They're underperforming direct rivals such as H-P,'' said Raffaella Sommariva, a fund manager at AZ Fund Management SA in Luxembourg, which oversees the equivalent of $14.5 billion. ``Dell is suffering more because of its business model.''

Shares Plunge

Dell, based in Round Rock, Texas, fell $2.01, or 11 percent, to $15.98 at 4 p.m. New York time in Nasdaq Stock Market trading. The price was the lowest since April 1998.

The stock has dropped 35 percent this year, compared with a 4.1 percent decline for Hewlett-Packard, which announced plans yesterday to cut almost 25,000 jobs as it integrates the purchase of Electronic Data Systems Corp.

Almost half of big corporations globally have curbed technology budgets for the next year to help cope with the economic slump, Forrester Research Inc. said last week. Companies have delayed projects and attempted to bargain for lower computer prices, the Cambridge, Massachusetts-based research firm said.

``Southern Europe has been relatively weak,'' Gladden said today at the conference. China sales haven't bounced back as quickly as expected following the Summer Olympics, while orders from Thailand and Malaysia have been hurt by political instability, he said.

Since returning to the helm last year, Michael Dell, 43, started selling PCs through retailers and overhauled design practices to compete with Hewlett-Packard, which led in PC shipments for the past two years.

Job Cuts

Dell said in April it would shed even more jobs than the 8,800 projected last year. The company said today it expects to incur costs this quarter from revamping operations and job cuts. The reductions pertain to that round of cuts, not new ones, spokesman Jess Blackburn said.

While Hewlett-Packard posted earnings that beat analyst estimates last quarter, Dell fell short. Profit dropped 17 percent and ``strategic pricing'' hurt profit margins in Europe, the Middle East and Africa.

``It is a slippery slope for them to continue to cut prices to stabilize demand,'' said Ashok Kumar, a San Francisco-based analyst at Collins Stewart Plc. He has a hold rating on Dell's shares, which he doesn't own.

The company's gross margin, or the percentage of sales left after production costs, amounted to 19.1 percent in its latest fiscal year, compared with 24.4 percent for Hewlett-Packard.

Hewlett-Packard bought EDS last month for $13.2 billion, aiming to bolster its services business to compete with International Business Machines Corp. Hewlett-Packard said yesterday that its job cuts will help save as much as $1.8 billion a year.

Server Sales

Dell also competes with Hewlett-Packard and Armonk, New York-based IBM in server computers, which run corporate networks and Web sites. Dell posted the biggest gains in that market in the latest calendar quarter, with growth of 15 percent.

The company is still gaining market share and intends to grow faster than the overall industry, Gladden said. Dell is seeing strength in consumer and corporate sales, he said.

Dell products are now in more than 15,000 retail outlets, Gladden said. The company has introduced seven new consumer products this year and will release 17 more in the second half. By the end of the third quarter next year, Dell will have completely updated its product lines and will be manufacturing them all at lower cost, Gladden said.

He declined to answer a question about the sale of Dell's plants as it moves to lower-cost Asian contract manufacturing. The company is shifting production away from Austin, Texas, and other U.S. locations.

``Everything is on the table in terms of that cost structure,'' Gladden said. ``Those are continuing activities. As those things occur, we'll be sure to let you know.''

To contact the reporters on this story: Amy Thomson in New York at athomson6@bloomberg.net; Melita Marie Garza in New York at mgarza4@bloomberg.net

Last Updated: September 16, 2008 16:07 EDT