DSG International, the owner of Currys, gave warning that profits would be as much as £10 million short of expectations after Microsoft’s Vista operating system failed to boost sales of computers as much as expected.

Kevin O’Byrne, the finance director, said that DSG had been disappointed about some of the marketing support from Microsoft for Vista and that fewer customers than expected had updated their computers or bought new models. He said that DSG, which also owns PC World and Dixons.co. uk, had sold 50 per cent more laptops in the UK than a year earlier. However, overoptimistic sales estimates meant that it had been forced to discount to clear stocks.

Shares in DSG slid almost 9 per cent, or 11.9p, to 124.1p as the company said group like-for-like gross margin slid 0.6 per cent in the 24 weeks to October 13 as a result of the discounting and increasing reliance on sales of less profitable computing hardware.

Gross margins at PC World dived by 2 per cent over the period, taking a £20 million bite into group profits in the first half, but analysts reckoned some of this shortfall would be made up for in the second half. DSG said it hoped to recover some lost margin in the second half of its financial year, which includes the all-important Christmas period, when more than half of all profits are generated.

John Stevenson, an analyst at Shore Capital, downgraded his pretaxt profit forecast for the year from £330 million to £312 million.

He said in a note: “We believe electricals has the potential to be one of the stronger Christmas categories. However, with high levels of price deflation, subsidised and free laptop deals eroding price architecture further and expectations of a consumer slowdown in 2008-09 we have taken a harsh line with forecasts.”

DSG also admitted yesterday that it was disappointed by performance at UniEuro, its Italian retail chain, where

I underlying sales slid by 8 per cent, an even worse performance than the 5 per cent decline recorded in the 16 weeks to August 18.

The worsening trading came despite efforts to refurbish stores, improve product and to increase advertising in Italy.

Mark Rollman, managing director of UniEuro, has resigned “for personal reasons” without a pay-off and Mr O’Byrne said that DSG had already begun a hunt for his replacement.

Until one is found, Per Bjorgas, managing director of the group’s electricals division, will take direct control of the ailing chain.

The warning adds to the difficulties facing the retailer, which is without a chief executive until John Browett, the former Tesco director, arrives in December to replace John Clare, who retired last month.

Mr O’Byrne said trading continued strongly in the UK and Nordic regions, with Currys the only chain in the group to see an improvement in performance since the end of August. timesonline.co.uk He said: “Most of our markets have been resilient but there is much debate about an uncertain outlook for the consumer environment.”

Games consoles, flat-screen televisions, digital SLR cameras and laptops are expected to be popular Christmas gifts. Mr O’Byrne said that DSG expected its online system, which allows shoppers to order and then pick goods up in store, would help to drive sales in the Christmas season.

PC remarks

—Vista launched in January, five years after its predecessor, Windows XP

—Editions are divided into two target markets, consumer and business

—In February Steve Ballmer, Microsoft’s chief executive, blamed software pirates for poor sales

—More than 40 million copies have been sold but Microsoft says it is shipping more old Windows XP than expected

—Acer is among companies to have criticised it as not different enough from XP

Not just small change

—DSG International will be fighting for a slice of a multimillion-pound contract to help the elderly and disabled prepare for the switch to digital television

—DSG’s The Tech Guys, which offers computer servicing and installation in its stores, won a subcontract for the first switch-over in Whitehaven, Cumbria, from Capita, which in turn was hired by the BBC to implement its help scheme

—The BBC said Capita’s ten-month contract for Whitehaven was worth £1 million. Firms are now bidding for contracts to provide the same service across the country

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