August 31, 2004

Dell: Fewer price cuts bigger margins

Dell has constantly focused on giving customers the lowest price on technology and treating technology as a commodity. This focus on low prices has forced Dell's competition to either produce technology with premium feauters, as IBM does and sell it at a preium especially in its notebooks or to try to get lower prices also like HP and Gateway are doing.

Business Week writes After three years of slashing prices to grab PC market share, Dell is backing away from the industry's bloodiest price wars in a bid to goose its profits. Since July, the company has raised prices as much as 13% on some desktops, including its low-end ones, and held pricing firm on most others, according to researcher Current Analysis Inc.

If Dell stays the course, could this mark a significant shift in PC pricing after years of downward pressure? Most experts say that's unlikely since Dell's rivals are locked in a brutal battle at the bottom of the market and in no position to raise prices. Budget-price PCs, says Chuck May, vice-president of desktops for Gateway, "are critical for driving sales."

But whatever its rivals do, Dell's shift is already helping the bottom line. While raising prices has slowed sales growth -- second-quarter unit shipments were up just 19%, the slowest rate in more than a year -- revenues rose 20%, to $11.7 billion, while net income soared to $799 million.

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