Feb. 28 (Bloomberg) -- Dell Inc., the world's second-biggest personal-computer maker, reported an unexpected drop in fourth- quarter profit after an expansion into retail failed to ignite sales. The shares fell as much as 5.6 percent in late trading.

Net income decreased 6 percent to $679 million, or 31 cents a share, from $726 million, or 32 cents, a year earlier, Round Rock, Texas-based Dell said today in a statement. Excluding some costs, earnings were 34 cents, missing the 36-cent prediction in a Bloomberg survey of analysts.

Chief Executive Officer Michael Dell's plan to enlist thousands of retail outlets hasn't revived growth as quickly as analysts had estimated. While the company gained U.S. consumer customers, lower prices may have hurt results, said William Kreher, a St. Louis-based analyst with Edward Jones & Co.

``They made some inroads at the retail channel, though at what cost?'' he said in an interview. Kreher downgraded Dell to a hold rating from a buy recommendation in December. ``It looks like in an attempt to gain unit share they lowered prices quite a bit.''

Sales climbed 10 percent to $16 billion in the period ended Feb. 1, missing the $16.2 billion average estimate in the Bloomberg survey.

Dell fell as much as $1.16 to $19.71 in extended trading after closing at $20.87 on the Nasdaq Stock Market. The shares have dropped 15 percent this year.

`Guesstimates'

Chief Financial Officer Donald Carty said the results met the company's expectations.

``We no longer provide guidance to the analysts,'' he said in a telephone interview. ``The analysts' estimates were based on guesstimates they made. Our results were very much in line with where we were trying to go. We are very pleased with them.''

Michael Dell, 43, abandoned the company's two-decade strategy of only selling directly to customers last year. By working with retailers, he aims to mimic the success of larger rival Hewlett-Packard Co., which entices consumers by letting them test-drive computers at stores.

``They still have a lot of work to do,'' Roger Kay, president of research firm Endpoint Technologies Associates Inc. in Wayland, Massachusetts, said in an interview with Bloomberg Television. ``At the moment, the momentum goes to H-P.''

Starting with Wal-Mart Stores Inc. in June, Michael Dell put his computers into 10,000 stores in the world's 10 largest markets within six months. Dell, who founded the company in 1984, retook the reins in January 2007 after former CEO Kevin Rollins lost the market share lead to Hewlett-Packard.

Overseas Effort

Dell's U.S. focus may hurt the company as that economy slows, analysts say. Dell gets more than half its sales from the U.S., while Hewlett-Packard counts on the country for less than a third of revenue.

The company plans to generate half its sales outside the U.S. by 2009. Its retail partners overseas include Gome Electrical Appliance Holdings Ltd. in China, Bic Camera Inc. in Japan, and Carrefour SA stores in Europe.

Michael Dell also fired workers to cut costs. In the past eight months, he has trimmed his workforce by 3,200, excluding the effect of acquisitions. The company's staff now totals 88,200, down from 90,300 a year ago.

``We have significant work to do on costs,'' Dell said today on a conference call.

Dell redesigned its products with new styles and colors to appeal to consumers. It also released its first all-in-one desktop PC, an aluminum-and-glass device that combines a computer and monitor in one chassis. The PC, which debuted at New York's Armani Casa store in December, lets users watch television and DVDs, listen to music, and handle regular computer tasks.

Adding Colors

Dell computers -- once produced in one color, arctic silver -- have been available in eight new hues since June, including blue, red, ``espresso'' and pink.

The company's share of the U.S. consumer market grew to 24 percent in the fourth calendar quarter, from 17 percent in the third quarter, according to research firm IDC in Framingham, Massachusetts. Hewlett-Packard's share of that market was 29 percent.

Dell also expanded further into storage devices last quarter. It completed its largest acquisition, the $1.4 billion purchase of EqualLogic Inc., obtaining technology that lets several storage computers operate as a single device.

To contact the reporter on this story: Melita Marie Garza in New York at mgarza4@bloomberg.net

Last Updated: February 28, 2008 18:05 EST