RSSCan Dell Make Money Selling AMD PCs?
By Scott M. Fulton, III | Published September 13, 2006, 12:54 PM
PERSPECTIVE Yesterday, the leading manufacturer of made-to-order PCs in the world finally rolled out the first in a long-awaited line of AMD-based desktop systems for the value and mainstream market segments. Dell will likely sell plenty of Dimension E521 models, with CPU options ranging from AMD's dual-core Athlon 64 X2 3800+ up to the 5000+, the latter of which has seen limited availability elsewhere.
Yet Dell's success with this new rollout isn't the issue of late. Among all the other problems Dell has been facing -- poor financial performance, investigation by the SEC, mixed reviews in the customer support department, inability to ship XPS performance PCs within five months of the order date -- the company appears to be falling victim to its own pricing practices.
As Dell executives admitted during its last quarterly conference call, the company been cutting its margins so low (the watch-word used here is "aggressively") that even when it does see a successful product line, it doesn't reap much revenue from it.
Despite promises from Dell executives to investors that this trend must and will reverse itself, yesterday's Dimension rollout displays evidence that the marketing department is continuing to display signs of aggression.
In a test Wednesday morning, BetaNews used Dell's online "configurator" to price an E521 full-size (half-tower) desktop system with a slightly upgraded, though still basic, set of customer options. We configured the system with an Athlon 64 X2 4200+ on-board (in place of the 3800+), 1 GB of DDR2 SDRAM, a 250 GB hard drive, a single DVD burner, a 17" flat-screen monitor, and an nVidia 7300 LE graphics card with 256 MB on-board.
We let the sound stay integrated on the motherboard, and we had Dell forego accessories except for the standard keyboard and mouse. Dell quoted a price of $989 USD, with an estimated ship date of October 2 - just under three weeks.
We compared this system with a very similarly equipped HP Pavilion, with the same 4200+ CPU, the same graphics card, and the options basically stripped to the bones. HP quoted $1,019.99 USD - only $31 more, but in today's market, that could be a veritable gulf. HP's estimated ship date is September 19 - only one week.
Among value-conscious buyers, a $31 difference could make or break the sale. Dell's margins appear to come in just under HP's at the moment, which gives Dell the edge today. The problem is, those margins could come at a cost. Like a gas station franchise that has to sell beverages to make up what it loses from sales at the pump, Dell may find itself having to sell more accessories -- speakers, custom mouse devices, TV tuners -- to offset what it's not making, or what it may even be losing, with each computer system sold.
There are less expensive alternatives. This morning, TigerDirect offered a Systemax Ascent system with the 4200+, and arguably with less expensive construction and standard accessories, although with an nVidia 7300 GS card - the next step up from the LE. TigerDirect quoted $869.97 USD, and promised shipment in up to five days.
On the other end of the pond, custom builder Velocity Micro is known for high-end systems, but it also offers more mainstream alternatives with more durable construction -- for instance, a custom aluminum case -- and, some say, personal attention to detail. This morning, we priced an AMD Athlon 62 X2 4200+-based Vision 64 system that also has an nVidia 7300 GS card, albeit with 512 MB GDRAM on board (it's not available with less from Velocity) and a 500 W power supply (again, nothing less is available). Velocity's price is $1,659 USD, and its shipping date is just over two weeks.
Though dealers such as Velocity sell to a much smaller segment of the overall PC market than Dell or HP, they're in an enviable position right now, in that they appeal to buyers willing to pay a premium. You start to see the logic behind Dell's acquisition of Alienware.
During Dell's August 17 conference call, analysts pointed out Dell was losing market share, mainly against HP, despite its own acknowledged aggressive pricing. CEO Kevin Rollins disputed the declining market share claims, although with regard to coming up with a pricing strategy for the post-holiday season, Rollins admitted, "We don't think we did a good job of that."
"We were overly aggressive in a slowing marketplace, and in a situation where component prices didn't come down as we had thought, so we had margin squeeze. In the future, we're going to be a bit more circumspect on our pricing strategy, more careful; however, we are not backing off and moving into a margin harvesting and loss-of-share situation; we're going to continue to gain share, but we're going to do it a bit more thoughtfully and more carefully," Rollins added.
Dell executives used that term "margin harvesting" in February 2004 to outline its strategy toward digging itself out of exactly the same dilemma it finds itself in today. Almost no one else uses this term, and although no one at Dell has explicitly defined it, so we can presume it means using low margins for the short as a tool to acquire more customers for the longer term.
When Rollins talks about component prices failing to decline, he's probably referring to Intel, which until recently was Dell's exclusive CPU supplier. AMD has a reputation for selling at lower costs to compete, but Dell's eventual warming up to AMD comes at a time when Intel's dual-core CPU introduction helped it reclaim the price/performance advantage.
With both declining market share and declining investor confidence, Dell is finding it harder and harder to build some breathing room. Its own premium line of PCs, the XPS series, has met with unprecedented shipping delays, and as long as XPS systems don't ship, new ones don't sell. Dell needs that premium to offset what it's not making in the value segment. So now, Dell faces a dilemma: Does it raise its margins before Christmas, and perhaps give up the #1 spot to HP, if the customers it retains help it increase revenues?
I think the more appropriate question these days is:
"Can Dell make money?"
Essentially, a Dell PC is for the dumb user who needs someone to call in the middle of the night to tell them how to format a floppy. There is no earthly possible way I'd ever recommend their proprietary garbage to anyone who wanted a mid to high level performance PC. Similarly, I wouldn't recommend their products to a low end but savvy user who didn't need hand holding to format a floppy. Finally, I wouldn't recommend them to a corporation - we tossed them based on their proprietary nature (there went 12K workstations worth of business). We won't even discuss the junk they sell as servers.
In short, they build LemmingMachines(TM).
All that being said, even the adotption of the excllent and clearly technically superior AMD processors isn't going to change that growing perception in the market any time soon.
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|Seems like you are missing something: The price for any hardware piece is not the same for everyone. If you buy an AMD chip, you'll pay retail price, if you buy 1000 processors, you'll be paying another price and if you buy 1000000 processors (as Dell do) the prices go down even more.
Dell can sell cheaper because of the volume they sell (more than HP+Apple+IBM together).
The problems with Dell management may exist,their tech support sucks and I really think they picked up the wrong time to include AMD products in their line(AMD is not in their best moment talking about price/performance), but I'm sure they are NOT loosing money, at all.
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|You are correct in the quantity they are buying. I have no problem with uality of amd, nor HDD's nor Video cards etc.
I have an issue with the quality of their motherboards, craftsmanship of cases, power supplys and such. That has gone down hill. They built there old cases(the plastic ones that split open) so insulated and quite that it over heated inside. They put them stupid green exausht things over the processors that they over heat. (DONT even tell me they work because they dont). Craftsman ship down hill. AMD isnt the problem with this company. Them bringing in AMD isnt going to hurt them nor harm them.
The only problem with AMD is people see an AMD64 with 1.7 or 1.8 ghz and think its slower then a Celeron 2.8 or 3.0 for example.
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|I personally can't believe people still buy the stuff. The problem is people don't realize the quality of these machines is so low its not funny. They used to be very good. I Admit that, however it has gone down hill in the past lets say 8 years or so. I have an old latitude 366 (upgraded to 500 mhz) that I wouldnt sell for anything. However, The new ones I would sell in a heartbeat. I just cant trust them anymore. Our customers show that with 3 bad motherboards each month that come into the shop and we say, oh well buy quality not price next time.
Don't even comment of the US Job Stealing market. Speak english at least.
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|deleted
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|Speak the truth Man! Speak the truth! I have a dell now and it started to have problems with Thermal Failure. To find out it wasn't the fans or motherboard, it was the weak 250 power supply they put into their systems that can't handle the advanced hardware. Some have tried 300 power supplies and it worked for them fine. I had to call dell and talk to reps and supervisors for weeks just to get my free one(had to go almost to the point of suing them for them to help me). I decided to try another way to see if I could solve the problem before putting in the new PS. What worked for me up to this point was vacuum cleaning the PS and dell system for 1 hour and scrubbing the build up off everything, even the wires and board. I only had this for a year and had to do a full cleaning job just to make it run. Do keep in mind I did do small maintenance to it monthly.
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|Out of curiosity, what model?
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|You're buying the cheapest Dell systems at the lowest possible service level. What do you expect?
I have about 100 systems here from Dell. All business-line systems with Gold Service. I have never once spoken to anyone at Dell who did not speak perfect English, nor have I had any problems with my systems outside the occasional Hard Drive failure or the Capacitor issue on the 270's that affected more than just Dell.
Of course their low-end is going to be crap. Again...what would you expect?
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|It doesnt matter, when we build systems for people (hopefully to replace there crappy dells), ours start at about $650 roughly. no matter what everyone gets the same service. This is wether they bought cheap or spent $5,000 (like some do). Everyone gets the same service. Dell needs to do the same thing. Its not difficult. Just becuase you bought 100 machines at $1000 each or whatever. What makes you more special then the average user that bought one machine at $500. Eaither way dell gets business. Business owners seem to think they are royalty becuase 1. the own a business, 2. becuase they HAD to buy 100 machines, NOT becuase they wanted to.
I understand that when you buy a business machine you are buying and talking to someone from Texas. When you buy the other s, you are talking to India. Either way, the service should be the same, EVEN if its only a year.
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|This is just a token gesture by Dell. Is it by chance they waited until a time when Intel had the upper hand with the Core 2 Duo, before introducing AMD models that nobody wants...
Who would buy an AMD 3800 X2, when the can get a bottom of the range Intel E6200 that totally spanks it in performance and power efficiency? It's the same story across the range. Even at the top end, the Similarly priced Intel chips far outperform the AMD offerings.
With Intel Core 2 Quattro's just around the corner (next month in retail), it's obvious Dell's AMD offerings are just a token gesture..
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|I think you meant Intel Core 2 Duo E6300, there isn't E6200. And the retail price of the E6300 is 202€ in here, and AMD's X2 5000+ AM2 is only 296€. Therefore I'd rather buy the AMD X2 5000+
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|They're working on it. We're watching the pendulum swing towards intel at the moment. It will swing back to AMD soon enough.
I'd really like to see where you're gettiong your performance / price info though. My own personal research still suggests that AMD is ahead on Price/Performance for all but the top tier chips, and they go to what...10% of the market?
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|it was a typo, I meant E6300.
However, looking at prices, the E6600 and AMD X2 5000+ are pretty much the same price here, and look at how the AMD chip gets spanked.
http://www23.tomshardwar...odel2=465&chart=171
I would have included a comparison at the bottom end, with a E6300 compared to a AMD X2 4200+ (again same price). I am pretty such the Core 2 Duo will spank it there also.
So in addition to the better price/performance on the Intel Core 2 Duo, you also get MUCH more power efficiency..
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|Dell is a well known brand. I am happy to see them diversify their lineup to include more then just Intel processors. I do find it funny that they waited for so long. And for their profits to fall in the toilet before adapting to market demands. AMD has been out performing Intel since the Athlon 64 came out several years ago. The only people to catch this has been everyone else, except Dell.
The simple fact now however is that with the Core 2 duo, Intel seems to be back in the lead for performance by a fairly wide margin. All Amd can do now is lower prices to compete.
let's just hope that Amd will come out with something new soon. I really don't think they were expecting this kind of response from Intel. But Intel has been woken up by shrinking profit margins and a shirking market share. So it's time to start trying again right. Good for Intel, I hope the fight continues because the entire industry benefits from it. Now if we can just do something about Microsoft....
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|When Dell started, they were pretty good. But, the management had an (???) idea – sell PCs at the lowest possible price. Of course that also meant compromising parts too. By lowering the price too much, consumers automatically demanded cheap PCs from Dell, and at the moment Dell is just a bit better than e-Machines.
Volume sales are not necessarily good if you want to maintain integrity. Corel and Sun in particular have lost most of the glitz they used to have and they are now struggling to survive. SGI was another example, but they are slowly coming back.
Before if you bought a Sun server, you automatically assumed good engineering. Not any more. It’s a shame to see the Sparc chip which is 1000 time better than the Opteron, being thrown out the window because of Wall Street inflated dreams of eloquence. Nowadays a Sun Server is about the same as a Dell server, and Dell is now desperate. In their new systems they are also going to use Semproms from AMD, which every IT person knows they are worse then Celerons, and any “no name” backyard Fab in China can make that. We all know that 90 percent of AMDs contribution to Uganda was the Semprom. Tanx AMD for your publicity campaign of your compassion to the 3rd world.
For their own good, Dell should use the best available chip, and stop playing tango with the uber-diva AMD and "lost in space" Intel. Is Dell using AMD because of price or because AMD is suing anybody that doesn't use their chips?
Is Dell trying to copy Wall-Mart? If that’s so, then a Dell PC will become a disposable PC which it’s not worth buying (unless if you have nothing to do with your money - $400 a pop).
I feel sorry for Dell. But it's their choice if they become another fancy e-Machine. There are other manufacturers that pride in what they do, and Dell is not one of them.
Dell should re-invent itself (just like Apple) and stop following the "el chaepo pack." Are the any open-minded and inovative people left at Dell???
PS. This is an inside story: Did you know that Dell marketing people didn't know the difference between Core 2 Duo and Athlon FX? Did you also know that Dell didn't know the difference between 64 bit architecture and platform chips? Also, did you know that Dell thought that AMD was the only player in the 64 bit area? For a company such as Dell not to be up to date with the latest hardware releases, clearly reveals a stupidity beyond comprehension.
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|Actually I checked their site, dell is not just pushing Semprons, but it is available. I am sure they are offering them just like Intel's celeron. A lower cost chip, not by much but it would make a difference if you buy 10 thousand of them right? I seriously doubt those can be made in a a chinese persons back yard. As for amd suing everyone that doesn't use their chip, where did you get that idea?
Amd is suing intel, because being a monopoly they are not entitled to certain practices. Say giving extra special discounts to customers who sign a contract that says they will use little or no amd chips. It just so happends almost immediately after amd filed that lawsuit amd's share of the market picked up quicker then they ever have. Even Dell is now selling Amd chips where before they would not be caught dead saying the name Amd. So either Intel has stopped doing whatever it was doing to prevent competition or Amd has just all of a sudden received more market acceptance, magically.
So yeah, Amd obviously did something good to promote competition. I am going to go with scaring intel into playing fair, that seems to be exactly what has happened.
Do you think we would be looking at Intel Core 2 duo's right now if it wasn't for the competition from Amd? I think not, in fact I think we would still be using 1 ghz Pentium 3's. Competition is good, now if we can just do something about Microsoft.
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|Oh, another thing: If Dell is selling at a low margin, how much lower is Apple's?
http://www.systemshootou...p/2006/0809_dt3200.html
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|Locally, Dell's service is the problem for them, IMO. No-one but Dell can get spare parts, and if it's out of warranty, they won't even consider repairing an item, regardless of cost. Only a short while ago I had a customer pop in with a 13-month-old Dell LCD, with what I suspect was a dead AD board. The customer explained that they had phoned Dell and asked them to repair it and had been simply told: "Sorry, it's out of warranty, we can't repair it." Obviously I couldn't repair it either - no access to Dell spares.
Bit tough telling someone they need to buy a new monitor after 13 months because Dell offer no repair service.
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|NOW of all times that Intel has apparently woken up out of its retard-like slumber to deal what could be a crushing blow to AMD with their Core2Duo's does Dell decide to do this? WTF.
I hope AMD acts fast btw, I simply don't even want to hear the word "Intel" anymore much less be forced to switch back to them on my next purchase... That would suck! AMD where the f* are you?
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|Swings and roundabouts. AMD will have an answer for Conroe, but it's a little way off yet. Even K8L looks promising.
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|The entire discussion is just stupid. There is no reason that there couldn't be more than only Intel, AMD and Cyrix in the marketplace with processors that can all provide the backbone.
AMD does not equal cheap quality.
AMD systems have outperformed Intel time and time again for the proper applications and even gamers tend to love AMD over Intel, time and time again.
Dell can make money selling any system them want if it's properly configured and for the right market at the right price point.
It's Amazing how companies like TigerDirect and new Egg can sell tens of thosands of AMD processors to system builders and DIY consumers weekly, as well as Intel processors.
It's amazing eMachines, Gateway, Acer and others can sell AMD based systems too!
Dell has a service level that people enjoy. Let that be their continued drive and focus, and they will succeed.
Lonny Paul
http://www.cesblog.com
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|Just to clarify--my post below does imply that the decision to use AMD was cheap. I did not mean to imply that. It mentions above that dell is selling a similar system to an HP Pavilion and the dell is only $41 less than the HP so it may not help dell with much profit.
My point is the dell should sell for more than the competitions because anything less will mean that they are cutting more corners. They need to quit cutting corners and spend all the money they need to spend to ensure the system is more stable and reliable than HP's. I agree AMD is not "cheaper" than Intel, absolutely.
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|lonnypaul: Thank you for your positive reply. BetaNews seems to have a lot of very angry people who make generalizations based on brand preference.
I'm a DELL user and I chose a good DELL. There are cheap DELLs, cheap HPs, and cheap computers everywhere for budget minded people.
I agree, the market is very open to other manufacturers provided that they offer a unique product and show a little ingenuity in getting that product to shelves. Apple, TigerDirect, NewEgg, and Alienware are all examples of successful companies (perhaps not chip manufacturers) getting a foot in the industry by doing things differently than DELL and HP.
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|Dell is blowing it. When I--was kinda sorta with them (not saying I worked for them, but I CAN'T say that, if you follow me :), I saw what they were moving towards, and immediately warned them not to go the "cheaper" route. People used to buy dell BECAUSE they were more expensive, BECAUSE they were better quality (when not necessarily true), and had the absolute best warrenty options (very much still the case). Now, their cheap PC's are cheap, and now HP/Compaq, Dell, and Acer are more or less the same. Dell had a niche, and they screwed it up to become another "regular". Idiots if you ask me. Dam, they could have blasted the competition too.
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|They can do in the short to mid-term what they really need to get a handle on is customer service.
Bringing in AMD is a good thing and will attract buyers but too many of us are burnt from previous poor Dell experiences.
It's another case of trying to fix a problem by adding more services they can barely service properly in the first place.
So glad I switched to Mac. :)
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|I think Dell needs to clarify to shareholders its current pricing techniques. For years, it went with Intel, which led to lower profit margins, and now when going with Intel will give it higher profit margins, it decides to take AMD on board.
Choices for customers is not bad business practice, but if its profit margins it is after, why diversify to an area where it will not find what it seeks?
Perhaps these executives have more incite than myself, and for the sake of seeing healthy comppetition drive prices for consumers, I certainly hope they do.
Latz, SB
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|Ya, it's all about ship dates. My computer sits on my desk for roughly a 500 day shelf life. 3 weeks = 3% of its usable life. No need for a 1-2% discount there.
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|yeah, considering including coupons you can buy a computer like 1/8th the price compared to here in Japan (Dell Japan). I wonder if Dell's going to sell those AMD computers here or not because most people who buy Dell here in Japan are corporates, and corporates here have a very, very strong negative opinion about AMD because they're bad at making relationships. Technology isn't that important considering most people just use word, excel, powerpoint... internet. It might attract some geeks though, because the AMD commercials here in Japan just totally sucks. Most people who use computer don't even know the name (at least in my workplace)
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|While perhaps the market isn't familiar with AMD, and most are corporate buyers. Then they need to perform function x, y, and z (easily replaced with OpenOffice).
How many of your co-workers are familiar with the FSB ratings? What brand of memory you have inside? Chipset?
Users need to use and stop trying to be technical.
Lonny Paul
http://www.lonnypaul.com
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|They need to get their shipdaes closer to the purchase date.
People are, for the most part, hell-bent on instant gratification, or as close to it as they can get. That $19 "gulf" is nothing when the system gets there 2 weeks sooner.
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|"That $19 "gulf" is nothing when the system gets there 2 weeks sooner."
Especially when shipping delays could result in a system "worth" much much less if it coincides with price drops.
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