Dell Could Trigger PC Price WarBy John G. Spooner | Posted 2006-05-19 Email Print
Dell's plan to cut prices has analysts warning of a potential PC price war.
Dell appears poised to spark another PC price war.
But analysts say that offering lower prices alone isn't likely to help the world's largest PC maker end a run of lackluster financials. While Dell's decision to use an AMD chip for multiprocessor enterprise systems dominated the headlines, the day after for the PC giant brought worries about a price war.
Following the release of the Austin, Texas, company's first-quarter earnings on May 18, Dell CEO Kevin Rollins said that Dell had resolved to cut pricesand some reductions have already been madein a tri-fold effort that also involves increasing product quality and bolstering service and support. The company reported earnings of 33 cents a share on revenue of $14.2 billion, in line with lowered Wall Street estimates.
"Our history tells usand we're setting the examplesthat it will accelerate growth. It does come at a margin bump. So we're prepared to take that," Rollins said, speaking during a conference call with analysts on May 18. "We believe we'll see sustained growth that will allow us to move back into profitability long term."
Dell has consistently grown its unit shipments at a more rapid pace than the market at large. But it saw that trend reverse itself in the first quarter, when its shipment growth of around 10 percent fell below the market's figure of about 13 percent, as measured by Gartner Group and IDC. By combining more aggressive pricing with improvements in quality as well as service and support, Rollins said Dell will stimulate demand for its products and return the company to what executives deem a more normal pattern of growth over the long term.
"We think with a combined effort there that we'll be in better strategic shape and over the long run our profitability will be better."
But Dell's chief financial officer, Jim Schneider, stopped short of calling the effort a brewing price war.
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