Ahead of the Bell: Dell falls after downgrade

The stock was down 33 cents, or 2.3 percent, at $13.75.

Analyst Mark Moskowitz downgraded the company to "Neutral" from "Overweight," saying the company is highly exposed to the PC market, which accounts for about 60 percent of its sales.

Late Tuesday, research firm Gartner Inc. said global PC shipments grew 15 percent in the third quarter, but just 4.6 percent in the U.S. Intel Corp., maker of the chips that go into more than three-quarters of personal computers, posted a 1 percent increase in third-quarter sales from a year ago, and said sales in the fourth quarter look uncertain, given the economic turmoil.

Moskowitz said Dell's focus on direct sales puts it out of position to capitalize on trend away from desktops toward laptops, which are relatively easy to buy in stores. Dell has started expanding store sales, but Moskowitz noted that competitor Hewlett-Packard Co., now the world's largest PC maker, took nearly a decade to develop its retail channels.

"We are not suggesting Dell will face a similar time horizon, but we submit that Dell's two-tier distribution model (i.e., direct/indirect) could take a few years before delivering consistent growth and profitability," Moskowitz wrote.

Moskowitz cut his earnings estimate for the quarter ending in October to 32 cents per share from 35 cents, and his revenue estimate to $16.62 billion from $16.83 billion.