Wall Street Journal
April 9, 1999
Dell Computer to Increase SalesBy GARY MCWILLIAMS
Of Cheaper Personal Computers
Staff Reporter of THE WALL STREET JOURNAL
NEW YORK -- Dell Computer Corp. will accelerate its sales of low-cost personal computers, relying on add-on products and services to offset the lower profit from such PCs, the company's head of consumer and small-business sales said.
Dell only last month began selling sub-$1,000 home PCs but plans to have "much more presence and aggressiveness in those lower-priced" products, Senior Vice President Paul Bell said in remarks here to Wall Street analysts. The company will increasingly offer printers and leasing plans, to keep the lower-priced machines from lowering profit, he said.
After falling short of Wall Street revenue projections in the fiscal fourth quarter ended Jan. 29, Wall Street has expected the company to use pricing to lift sales. Chief Executive Michael S. Dell said the company continues to see "quite healthy" demand for all of its products despite recent warnings from others in the computer industry. Dell shares closed down $1.4375 to $45 in trading on the Nasdaq Stock Market Thursday.
Mr. Bell said early sales of Dell's $999 PC have been "very solid." It began offering the PC after deciding some buyers wouldn't consider Dell products because it lacked a lower price, he said. The company believes that the under $1,000 PC will help it sell higher-margin extended warranties and printers.
While hardly groundbreaking in an era of $599 machines, Dell's recent embrace of under $1,000 PCs continues the company's practice of avoiding first-time PC buyers, analysts said. Rivals first began selling machines at that price two years ago. Dell accounts for just 5% of world-wide home-PC sales but has seen the business expand rapidly in the last three years.
"Dell is following the appropriate strategy," said Warburg Dillon Read analyst Charles R. Wolf. "There's no advantage to being a first mover." International Data Corp. PC analyst Roger Kay said the company won't try to compete with $699 PCs now being sold at retail. "This is still skimming the cream."
The Round Rock, Texas, PC maker traditionally has sold higher-priced and performance machines to sophisticated buyers. The bulk of its home and small-business PCs has been sold for between $2,500 and $2,999, Mr. Bell said.
Dell will move to lower-priced machines as component and service costs permit, he said. "We continue to pursue a long-term trend of continuing to work on efficiencies," he said. One thing it hasn't done is switch microprocessor suppliers. Dell, the last major manufacturer solely offering Intel-based PCs, routinely evaluates alternatives to Intel microprocessors, but "with Intel's lineup we can meet our price and value objectives," Mr. Bell said.
The company will expand it services on the Internet to lower its service costs. Mr. Dell said the company estimates it costs $3 to $8 for every call made to its technical-support center. It has recently begun offering self-help aids and encouraging customers to exchange technical information on its Web site (www.dell.com). The Internet aids have reduced the number of phone calls 25%, Mr. Dell said.
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