Dell shares fell last week after a profit warning caused by growing competition and price cutting in the PC market.

Chief executive Kevin Rollins says first-quarter revenue and earnings per share will be below previous forecasts because of ‘pricing decisions that the company expects will accelerate revenue growth in the future’ – in effect, Dell has cut prices to maintain its market share and maximise future sales.

Dell shares have fallen from $32 (£17) in February to less than $24.50 (£13) last week.

The slump comes after many years of growth for the supplier, which relies on PCs for about 40 per cent of its revenue.

Analyst Gartner says Dell’s PC sales increase fell to about the same level as the overall market growth towards the end of 2005 for the first time in seven years. In the first quarter of this year, Gartner says Dell’s PC market share fell 10 per cent, while HP’s grew 22 per cent. But Dell is still the biggest supplier, shipping 9.4 million PCs during the three-month period.

But the firm has experience of dealing with slower growth, says Gartner managing vice president Charles Smulders.

‘Historically when the market has slowed, Dell has been able to adjust its business model accordingly, allowing it to drive down prices and drive up demand,’ he said. ‘Dell will compete more aggressively in 2006, putting further price pressure on its competitors and suppliers.’