NEW YORK, Nov 17 (Reuters) - Merrill Lynch downgraded Dell Inc (DELL.O), citing a deteriorating personal computer market and lack of short-term catalysts to revive growth and knocking its shares down 5 percent.
The brokerage, which lowered its rating on Dell to "neutral" from "buy" on Monday, also slashed its forecasts for PC unit growth for the industry for 2009 and 2010 due to worsening global business conditions, tighter technology budgets and weakening consumer spending.
Merrill expects PC unit growth in 2009 to fall 2 percent, compared with its earlier estimate of a 12 percent increase.
For 2010, it sees a 5 percent growth, compared with its prior view of a 10.5 percent growth.
Dell, the world's No. 2 PC maker, reports its quarterly results on Thursday, while larger competitor Hewlett-Packard Co (HPQ.N) will report next Monday.
Analysts expect HP, which also makes money from services and printing supplies, to be better insulated from the PC sales decline. HP's recent purchase of technology services provider EDS will also help, analysts said.
Merrill pointed to sharply lower forecasts for the fourth quarter of 2009 from several technology giants, including Cisco Systems Inc (CSCO.O), Qualcomm Inc (QCOM.O) and Intel Corp (INTC.O), as harbingers of tough times ahead. It also noted that U.S. consumer electronics chain store Best Buy (BBY.N) saw "an abrupt and massive" fall off in demand in October.
Merrill lowered its earnings and revenue estimates for Dell for 2010 and 2011, based on the weaker PC outlook and the company's exposure to corporate desktop PCs.
Operating margin improvement will prove increasingly difficult for the company in a decelerating revenue environment, the brokerage said and cut its price target on the stock to $13 from $22.
Dell has been restructuring to meet decreased demand. In August, it said it cut 8,500 jobs out of a planned 8,900.
Dell shares fell 18 cents, or 1.65 percent, to $10.71 on the Nasdaq stock market after falling to as low as $10.27 earlier in the day. Shares of HP fell 63 cents, or 2.07 percent, to $29.83. (Reporting by Robert MacMillan in New York and Shrutika Verma in Bangalore; Editing by Vinu Pilakkott and Derek Caney)
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