Shares in Dell, the world's second-largest manufacturer of personal computers, fell more than 10 per cent to a seven-year low yesterday after it said that fewer people than it expected would buy its machines this quarter.

The warning followed the group's prediction last month of “continued conservatism” in technology spending in America, Western Europe and Asia, combined with a surprise 17 per cent fall in second-quarter profits.

Dell also reiterated that it would have to face up to the costs of "realigning its business” as customers continue to rein in spending.

The group is in the midst of substantial internal changes, which include shifting its business model away from desktop computers to laptops and selling its PCs to retailers rather than directly to consumers.

In April, Michael Dell, the group's chief executive and founder, who returned to head the struggling company last year, pledged to strip out $3 billion (£1.7 billion) in annual costs. The company has cut 8,500 jobs out of a target of more than 8,800.

Dell has been struggling against Hewlett-Packard (HP), its main rival, which overtook Dell two years ago to take the top slot for global computer sales.

On Monday, HP announced plans to cut almost 25,000 jobs as it integrates Electronic Data Systems, which it bought last month for $13.2 billion.

Dell's global sales rose 21.8 per cent in the second quarter, ahead of HP at 17 per cent, and above market growth of 15.2 per cent. It said it expected this trend to continue.

By cutting prices, Dell has managed to close the gap between itself and HP, but in doing so it has been forced to slash its margins.

The company's warning sparked fears that it could close its factory in Limerick in the Irish Republic as it continues to struggle with profitability.

Dell employs 3,000 people at its plant in Limerick, including 2,000 manufacturing workers and a further 1,000 staff in finance, marketing and other positions.

Industry sources have suggested that production could be switched from the plant, which opened in 1991, to Poland, where labour costs are lower and where Dell opened a factory last year.

The Wall Street Journal reported this month that the group, which is based in Texas, had offered to sell its own factories to rival contract computer manufacturers in an attempt to reduce costs. Those factories that it could not sell would be closed, the newspaper said.

Last month, Dell reported a 17 per cent decline in second-quarter net income, which was largely attributed to its strategy of cutting prices on its personal computers as the company expands into more retail stores and markets outside the US.

However, Dell said at the time that it would consider scaling back its rapid expansion in Europe.

Dell said it planned to continue its focus on global consumer, small and medium-sized businesses, enterprise, notebooks and emerging countries.

On Nasdaq, Dell shares fell to $15.98 — down more than 11 per cent — after closing at $17.99 on Monday. Shares in the group have fallen more than 40 per cent in the past year. Yesterday’s share price was the lowest since September 2001, when it fell to $16.63.

Vital statistics

— Dell was founded in 1984 to sell computers direct to consumers

— It is still the market leader in the United States, but is No 2 globally behind Hewlett-Packard

— Dell ships about 140,000 computers a day – an average of more than one every second

— It has 89,100 employees worldwide with factories in Brazil, the US, China, Malaysia, India, the Republic of Ireland and Poland

— Its gross margin – percentage of sales after production costs – was 19.1 per cent in its latest fiscal year, compared with 24.4 per cent for Hewlett-Packard

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