RSSDell Feels the Squeeze of Low-Cost PCs
By Ed Oswald | Published November 11, 2005, 5:14 PM
Leading personal computer manufacturer Dell saw its profit slump by 28 percent in the third quarter of 2005, however it remains optimistic in the face of what looks to be an increasingly tough market for PC makers. Computer users are increasingly turning to lower-end systems that are powerful enough for basic tasks.
The problem with this trend is that manufacturers make less profit on each system they sell. Dell actually shipped a record number of PCs in the third quarter, but it did so at a lower profit margin due to the shift in the market.
For some companies who are looking to make an impact on the industry, such a market may be beneficial in the short term. However, for larger companies like Dell who are already established, it does little for their bottom line.
"Those who are targeting the low-end market are going to increase their market shares, but not their revenue," Current Analysis analyst Nicki D'Onofrio explained to BetaNews.
Instead, Dell must target the upper echelon of computer buyers, and while it may do less volume, the company will pull in higher profit margin. Thus, Dell said it only expected between 9 to 11 percent growth in the holiday quarter, compared to an average of 15 percent during the past year.
"The PC market is commoditizing. Price erosion is something that's having an impact on all players," D'Onofrio said. Dell's size also works against it. Ten percent growth for a company of the Texas computer maker's size is a lot harder to achieve as compared to a smaller competitor, she added.
Further hurting the company's bottom line was a $300 million charge Dell had to take in order to fix faulty capacitors that it had discovered in one of its business desktop lines.
In an attempt to combat the changing market, Dell is trying to lure consumers back to higher priced -- and more profitable -- desktops and notebooks. The company launched its line of XPS "luxury" systems in late September.
"They are trying to brand it as a Lexus-type product," D'Onofrio said, noting that it will not be enough to just focus on the high end. "They need to make sure they're offering value products."
It's also not clear if a switch in Dell's business practices could help its bottom line. For the entire history of the company, Dell has never offered its systems through retail channels; would a switch now change its fortunes? Probably not, D'Onofrio says.
"The retail market can be a bloodbath as well. It's hard to tell if they would do any better."
My experience with Dell has been good, even on my refurbished PC. It's just a tough market out there. People are learning that you don't need a dual-processer with 4Gb of memory to search the web. If you looked at a lot of people's PC use, you would see how much over-spending they do when they purchase their system.
Luxury systems represent a very small market. Unless your a gamer with a lot of money to throw around, you don't need to spend $4000.00 to get a really nice system. Dell has reached the point of diminishing returns. You can't remain an entrepreneurial company for ever.
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|"Further hurting the company's bottom line was a $300 million charge Dell had to take in order to fix faulty capacitors that it had discovered in one of its business desktop lines."
Optiplex GX270's purchased between June 2003 and mid-February of 2004. Also their SX260's and SX270's but most of those have already been replaced.
Just in case you were wondering.
Also, ever since Mike stepped down as CEO Dell has slowly gone downhill. I know this because I worked for them between September of 2003 and October of this year, and I saw the changes. Rumor only, but I believe Dell just isn't paying their client support callcenters here in the US for them to stick around, and there's constantly a s***ing between India and US for tech support. I know the issues there. I've dealt with them directly.
Our entire callcenter was strictly dell support originally, then we got new clients (cell phone companies and the like). Recently, Dell decided they didn't have to pay us as much since we had over 250 Dell support agents we wouldn't care. I lost my job working for dell, and was moved to another support agent at the same callcenter (heh--at that Dell's competitors!). Sadly, it doesn't matter who you are, how you buy, or what you buy them for--Dell still has THE BEST support, period. HP is always in India, Sony has screwed up with their VAIO laptops overheating (and their serial numbers "melting" off so even if you wanted you can't get support--on top of that Sony's software that comes on your PC/Laptop is so intrusive it makes DRM look like it's an Antivirus), Gateway still has manufactering problems--trust me as downhill as dell has gone they are still the best. I've supported ALL of the above vendors, I know.
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|I Agree with what dell is doing, attempting to get away from the cheap low end systems. I have been inside and worked on these computers, and I would be extremly happy to see them go. They contain nothing but cheap junk parts. I was messing around with a Dimension 2400 a week ago with a fried MoBo. when I pull it's "celeron D" chip from it, it actually looked different from the celeron D chip I installed in a custom build. not nessicarily the chip itself, but the architechure. Which shows me that not only did intel make a contract with dell, is that they are even make their allready cheaply made low end processor, even cheaper made, and even more low end! If I took these two systems:
Acer Aspire T650
Intel Celeron D 336 2.8Ghz
512MB DDRII
160GB Sata HDD
DVD-R/+RW
Integrated Raedon X200 Video
Integrated sound
Integrated Gigabit eithernet
With Windows XP Home Edition.
Now I sell this system with a 17" Acer Flat Panel monitor for $849.99
Now a Comparable dell would only run you about $699 with the same features, that's about $150 less. But if you sat both systems side by side, the acer would OUTPERFORM the dell no problem! just because the specs are the same, that doesn't mean the cheap parts will perform as well as the good parts, The Acer uses a Asus Motherboard with an Xpress200 Chipset, whereas the Dell uses a Intel Motherboard, that honestly looks like it were put together by a monkey, I mean the next time you get a chance, look inside of a dimension series Dell, look out cheaply made everything is! it's horrible!
If dell wants this market back, they need to go back to making a reliable, powerful system, at a good deal, rather than trying to push a PC for $299. (shhhh, if dell really wants to increase profit, providing AMD chips would be the way to go!!! )
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|Well, the Dimension 2400 has just a 533MHz FSB, no SATA connectors and the integrated intel extreme(ly slow) graphics, so that's a little unfair. Also that price gives you A THREE YEAR WARRENTY ONSITE NEXT DAY, STRAIGHT FROM DELL. HP/Compaq, Sony, --only one year warrenty tops for their desktops/laptops. Told differently? You were lied to, the "three year" warrenty is done by another company after one year, and our support sucks (yes, read it again, I do mean 'our').
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|When I see that Dell call a "server" something with a celeron, 512Mb and a 80Gb HDD ... its line of luxury systems makes me laugh ... :-))
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|Well if AMD had more plants they could keep up with the demands for OEMs such as Dell, and the price of the CPUS would go down only a small amount. I'm not sure if anyone else read it before but it cost Intel on average $47 to mfg. a CPU and when they literally sell a million of the same CPU to a company like Dell they do not charge retail (Up to about $125 for a Celeron) where those are the cheaper chips so they cost less than $47 to make they probably sell them to dell around $50 a piece.
50$ out of 300 isn’t all too much so even if AMD was HUGE and could keep up what would they be selling at? $40??!! The only other places to cut costs aren’t too smart. Dell has stayed smart in continuing to mfg. motherboards with good quality capacitors which leads to the board being more stable and less likely to go bad. If they shoot for a $200 computer there isn’t much else they can do except make motherboards and power supplies with cheaper parts or use "no-name" hard drives, things of that nature.
If they do go down that path they will find more and more bad parts and a rise of dissatisfied customers. (No one wants to fix a $200 computer they would rather replace it.) This in turn would only hurt Dell.
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|Dell has an exclusive contract with Intel. If they were to start selling to Dell, they could easily increase the numbers to the number of buyers who would purchase AMD Processors.
Intel sells processors (Desktop) to Dell at about $100 otherwise they would not be reporting Billion Dollar profits.
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|I am working on my neighbor's Dell right now and I am still on hold with Dell Customer Support (32 minutes now and counting!) just to talk to somone!
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|I hope my bad experience with Dell has not got you too worried about getting your Dell fixed.
I have dealt with them in the past and they have been very good to me, but this time around I notice things have changed at Dell, and I am just not inclined to give them another chance. As they say themselves, it is a commodity market, and I can buy very similar commodities from other suppliers.
By the way... Dell charging me almost 70 GBP for a replacement laptop power supply is a rip-off. I got a new one for 26 USD on ebay, and stuck my Dell sticker on it. If a small dealer on ebay can offer a deal like that, why can't Dell with its huge buying power at least match the price? If they can then one has to ask why they don't, and if they can't then they need to hire a new buying department.
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|Dell has a good line of laptops. I would never buy a desktop machine from them, though.
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|Dell in trouble?? I am not surprised...
When I bought my current Dell PC in the UK, I discovered the UK sales centre had moved to India (i.e the other side of the planet). That caused a few language problems. Then they did not recognise my bog-standard VISA card. They tried to process the order by VISA twice but failed. So I mailed them a cheque. In the meantime my new PC arrived out of the blue. Then it transpired that their failed attempts to process my VISA card had suceeded, and they had charged me TWICE for the computer. I cancelled the cheque in time to avoid paying a THIRD time (thank god!) I was buying a home at the time and that screw up left me without enough money and the deal almost fell thru. The idiots at Dell did not even have the decency to apologise, or to compensate me, and it took TWO count-em TWO months to get me a refund, and even then, they had lost the sales record, so I had to fax MY copies of their paperwork plus bank statements to India to prove what had happened. Add to this the fact that, whenever I called them about this problem, I was passed around 6-7-8 sometimes 9 people before some disinterested bod gave me some blah-blah as if the whole thing was my fault.
What a bunch of idiots. For pity sake Dell, sort your act out. How do you expect to sell anything when your sales channel is a mess? I won't be buying another Dell, that's for sure!
Dell has been selling on price for years, and now complains it is feeling the squeeze on margins. While I empathise a little with Dell's difficulties in what is now ostensibly a commodity market, it needs to come out fighting, not try to put the squeeze on customers for more money. Frankly, I couldn't care less what badge is on my PC. I have no loyalty to Dell or any other brand.
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|Just some FYI for those who care. This is regards to the AMD based Dell.
I had that Dell dropped off here today. I opened it up to get a shot of the Motherboard, it's not factory. He says that no one else has worked on it other than me, but I never changed it. So I was wrong, it's not a Dell AMD, but a converted Dell.
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|I am a computer builder/reseller. Dell systems are the ones that come in for repair. Good job Dell :) I have no complaints about them and their systems because its bringing in extra $$$ for broken parts that are out of warranty :)
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|The praise any large company does not want, but all resellers give. :)
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|Start selling AMD64 desktops and you'll see growth of at least 1 more computer bought - from me.
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|I'm still waiting on Dell TabletPC's... or at the very least a Dell Tablet/Notebook Convertible. Unfortunately, Dell doesn't see the value in marketing anything other than what they have. They don't need to resort to retail... direct serves them well... it's the variety of system lines that they need. More than just Intel crap, and more than just slightly different configurations of the same model. While they're at it, they should bump their minimum RAM standard up to 512MB+.
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|Going after the high-end market was actually a good idea, just not the laughable way they went about it... in order to accomplish this successfully, they'd need to stand their current culture/model/practices on their collective heads, as well as have the appropriate new blood running this niche-- whether as a Dell Jr., Dell OC'd, Dell Nascar'd(what an appropriate sponsorship-- maybe even complete with a successful racing team)-- independent enough to use any hardware, software, OS-- AND withstand the expected cries of foul from industry behemoths & business partners.
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|Hmm, I thought Dell was low end. I've looked under the hoods of several different Dell models this past year and was appalled at what I saw. So if Dells aren't considered low end, then I'd hate to see the sh*t hardware in the machines that are.
My advice to anyone looking for a new pc: Spend the few extra bucks on good hardware and build your own, or pay someone to build it for you. With cheap hardware, I guarantee that sooner or later - and later has left town - you will encounter untold grief. Somehow, find a way to save the $$ for good hardware.
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|Make your excuses now Dell, you had a chance to lower your prices but were to greedy. High end won't sell to the average user. Hope Dell loose's a major chunck of their market share. Intel has nothing to do with this for the couple dollars difference in cost between Intel
and Amd it's just Dell being greedy! The XPS systems price has to make you laugh.
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|Dude...what happened? Lexus product? Why not offer a Lexus with a Dell in the dash board?
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|Keep selling overpriced intel dreck and you'll surely feel it, Michael.
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|commoditizing - what does this mean?
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|Pay no mind to me.
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|Commodity: the product in question may be produced by different companies, but are considered largely the same. If what you sell is a commodity, then you will have great difficulty charging more than the market price.
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