Dell spokesperson David Frink said the investigation, which began in 2005, cost $205m through its most recent second fiscal quarter and involved an outside team of 375 lawyers and accountants. Dell said it now expects to be in compliance with Nasdaq regulations. And the resulting $92m reduction in profit for the period from fiscal 2003 to the first quarter of fiscal 2007 was less than Dell’s own top-end estimate of $150m.

That was the good news and it helped send Dell shares up more than 2.5% to close at $30.60 on the Nasdaq yesterday.

The not-so-good news was that Dell’s consumer business has tanked. Because the company was in the process of restating its earnings, it had not held a conference call with analysts to discuss its business in several quarters. And Dell doesn’t break out profitability for its specific business segments.

But in its regulatory filing, the company revealed that US consumer revenue for its most recent second fiscal quarter fell 27% year-over-year. The significant decline in US consumer revenue is due to competitive pressure and continuing decline in desktop revenue, said the company in the filing.

Desktop shipments dropped 36%, while notebook shipments fell 38%. Notebook revenue fell 36% despite sales growth in the broader consumer mobile industry mobility of 26%, Dell said.

Spokesperson Frink said that Dell was working on several initiatives to restore profitability to its consumer business, including improved product design and features, and branding. In May, Dell diverged into retail sales, breaking from the direct-sales model that made it famous, with Wal-Mart Stores and Sam’s Club in the US. It has since announced similar deals with Carphone Warehouse in the UK and Gome in China, among others. Expect to see more of that, Frink said. He also said Dell was working on improved service delivery and tools for consumers, but he was not specific.

UBS financial analyst Ben Reitzes said the extent of the decline in Dell’s consumer business may surprise some investors.

We look forward to hearing how Dell can turn this segment around and why it actually got worse in recent quarters and not better, when it seems that both the component and ASP environments were more benign, Reitzes said, in a research note.

Frink declined to comment on Dell’s enterprise business, which he said would be discussed on a conference call when Dell announces its third-quarter results on November 29.

Round Rock, Texas-based Dell is still being investigated by the Attorney General’s office in New York State and the US Securities and Exchange Commission.

Our View

The restatement will help put investors’ minds at ease. But it remains unclear how Dell will better compete against arch rival Hewlett-Packard, which ousted Dell from the market’s top spot and has a revamped product line and marketing campaign of its own.

So far, Dell has launched a line of colorful Inspiron notebooks, as well as a new line of low-cost notebooks and desktops for small businesses. It has also announced PCs running Linux. But Dell is now facing increased competitive pressure from Lenovo Group in the US, as well as Apple, and its latest initiatives all seem to be just small steps forward.

Given the latest consumer numbers, Dell’s retail strategy doesn’t seem to be making a significant difference.

And Dell’s reinstated chief executive, founder Michael Dell, won’t have finished cutting 10% of its staff, or about 8,810 workers, until next June.