Dell burned by selling machines at bargain-basement prices last quarter, pain may not be over

“In recent weeks, Dell has held a virtual fire sale, offering many PCs at rock-bottom prices. That may be a bonanza for the tightwad consumer, but the super-low pricing once again is taking its toll on the world’s largest computer seller,” Louise Lee reports for BusinessWeek online. “On May 8, Dell said it would post fiscal first-quarter revenue of $14.2 billion, at the low end of its earlier projection of $14.2 billion to $14.6 billion. Worse, Dell said it expects earnings of about 33 cents a share, falling short of a projected range of 36 cents to 38 cents, including an estimated three cents of stock-based compensation. The announcement sent shares down by almost 6% in extended trading.”

“The earnings warning is the latest in a year-long string of financial disappointments for the Round Rock (Tex.) company. Just two years ago, Dell was posting quarterly sales growth rates of more than 18%. By contrast, the current $14.2 billion projection represents a growth rate of only 6% over the year-ago level,” Lee reports. “And analysts don’t believe Dell’s strategy of bargain-basement pricing will change any time soon. ‘We expect more of the same, limiting the near-term upside in margins and profits,’ says Brent Bracelin, analyst at Pacific Crest Securities.”

“The trouble for Dell is that unit volumes aren’t compensating for price reductions. Besides hurting Dell’s sales and profit, sluggish unit growth is also eroding market share, another key measure of overall health,” Lee reports. “Dell’s key rivals, including Hewlett-Packard and Acer, meanwhile, saw market shares increase, according to IDC. The gains reflect competitors’ growing appeal as they’re increasingly able to match or even beat Dell’s prices to steal sales. ‘Those companies have gotten more price-competitive,’ says Cindy Shaw, analyst at Moors & Cabot Capital Markets. “Dell doesn’t have the price advantage any more.'” Lee reports. “And compared with some of the competition, in particular Apple Computer’s machines, Dell’s products simply don’t stand out, further eroding its appeal to customers. While Dell’s computers are mostly still plain, neutral-colored boxes, ‘when you look at an Apple Mac, you want to touch it and bring it home,’ says Shaw. Dell’s big challenge now is getting more shoppers to swoon over its products before its longtime domination over the PC industry slips away more.”

Full article here.

MacDailyNews Take: If you think that we just can’t get enough of this story, well, you’d be right. Dell makes nothing special or unique. Dell assembles dull boxes that try to run Windows, just like everyone else’s dull boxes. Dell’s bait and switch website is a maddening morass of mediocrity with coupon codes. Dell’s high point (like Microsoft Windows’) is in the rear view mirror. Why would anyone in their right mind — or not locked into a contract — buy a Dell when Apple Macintosh runs the world’s most advanced operating system plus Linux and even Windows (if need be), too?

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88 Comments

  1. The problem for Dell is that they rely solely on a business model: selling large volumes of dirt cheap boxes at low margins. A business model is not protected by patents or copyright laws. Therefore, it is simple and legal for competitors to copy the business model and even undercut Dell’s prices. For innovation, Dell relies on Microsoft and its Windows OS. So basically, they’re f*cked.
    Apple, on the other hand, relies on design and innovation, both protectable by copyright laws and patents. To compete, someone would have to out-innovate Apple, and that’s a tough thing these days.

  2. could some one please tell me the point in writting first post? ? ? half the time people who do it come in second and the other half usually have nothing useful to say – very sad

  3. “If I were running Apple, I would milk the Macintosh for all it’s worth — and get busy on the next great thing. The PC wars are over. Done. Microsoft won a long time ago.” — Fortune, Feb. 19, 1996

    Hmmmmmmmm

  4. Mackie Dell should “sell all the stocks and return the money to the rightful shareholders”! The quote came from his own mouth years ago when he was being sarcastic to Apple. Eat your own words and foot Mackie!! Ah… haha….

  5. “he problem for Dell is that they rely solely on a business model: selling large volumes of dirt cheap boxes at low margins. A business model is not protected by patents or copyright laws. Therefore, it is simple and legal for competitors to copy the business model and even undercut Dell’s prices. For innovation, Dell relies on Microsoft and its Windows OS. So basically, they’re f*cked.
    Apple, on the other hand, relies on design and innovation, both protectable by copyright laws and patents. To compete, someone would have to out-innovate Apple, and that’s a tough thing these days.”

    Yeah, and this brilliant strategy has yielded them a whopping 4% market share

  6. JIM, nothing is forever, windows did win the battle, but the war is never ending. a bloated and insecure operating system like windows will cripple under its own weight! i forsee 1 set of programmes with a variety of operating systems in the future, with osx leading the way, especially if apple makes leopard compatible with windows apps.

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