Dell Tries To Put Out The Fire

Investors don't hear much negative comment about Dell Computer Corp. So Kidder, Peabody & Co. analyst David R. Korus caused a stir on Nov. 20 when he suggested in a conference call with investors and brokers that Dell may have used foreign-currency speculation to buttress its earnings. The day before the call, Dell stock surged on the news that profits and sales for the quarter ended Nov. 1 had more than doubled from a year ago, to $28.6 million earned on sales of $570 million. After the call, Dell stock began dropping, falling five points in two trading days (chart).

Dell Chief Executive Officer Michael S. Dell responded quickly. On Nov. 20, he denied any improprieties in the company's currency trading. Dell's law firm warned Kidder and Korus they faced legal action and alerted the Securities & Exchange Commission to Kidder's "false allegations." Dell also asked the SEC to investigate the stock's movement, noting that shares were losing value even before the conference call.

QUESTIONS. Korus, who declined to comment, said in his conference call that he had been concerned for months about Dell's foreign-exchange trades. In August, Dell reported that, based on option contracts outstanding on Aug. 2, it was facing a $38 million currency-trading loss. It said in March that it had $435 million in forex contracts outstanding.

Korus began asking questions. Were some of the currency trades profitable? If so, did Dell account for the profits properly? He worried that if Dell had to change its accounting, the restatement could wipe out its rosy gains.

"There is no danger of a restatement," says a Dell news release. That was enough for some analysts. Dell, says James Poyner of Rauscher Pierce Refsnes Inc., "has gone to great lengths in the last two days to come out with an unequivocal rebuttal." But that hasn't stopped some investors from asking the same questions raised by Korus.

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