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 user 2005-02-20 at 9:32:00 am Views: 65
  • #10405
    ‘Dell Effect’ takes a
    toll on PC rivals

    AUSTIN,Texas,Dell Inc. employees use the phrase “Dell Effect” to describe the way their
    company has pushed personal computer prices lower.

    The term might be better used to describe the effect Dell’s
    success with PCs has had on its competitors. On Wednesday, Hewlett-Packard Co.
    Chairwoman and CEO Carly Fiorina left the company, embroiled in a mire of
    inconsistent performance, especially at its PC division.

    Fiorina’s departure comes about two months after IBM Corp. _
    the company that made the personal computer a household device _ announced it
    will sell its PC division to Lenovo Group Ltd.

    It seems Dell is the only large company to turn a meaningful
    profit from the sale of a PC.

    “The only
    place Dell is getting any competition at all is from Acer notebooks in Europe,”
    said Roger Kay, vice president of client computing for market tracking firm IDC.
    “They’re putting pressure on everyone financially.”

    Not long after IBM announced it would sell its PC business, a
    regulatory filing showed that the division had lost almost $1 billion from
    January 2001 to June 2004.

    H-P has made
    money in some quarters, but not much. Its PC profit has hovered at about 1
    percent, less than the company could make simply investing in Treasury bills, as
    Kay likes to point out.

    Dell’s operating
    profit increased to 8.8 percent in its third quarter, and that’s expected to
    hold fairly steady when the company announces its fourth-quarter earnings today.

    Dell spokesman David Frink declined to
    comment on Fiorina’s exit, but it’s bound to come up during the company’s
    conference calls with analysts and reporters. And Dell will try to find a way to
    take advantage of any concerns H-P customers have.

    “The uncertainty level at H-P now appears to be higher than the
    level at IBM,” Kay said. “And Michael Dell is up in his suite laughing all the
    way to the bank.”

    Life wasn’t quite as
    grand heading into the summer of 2002. Fiorina was putting some pressure on Dell
    as she closed H-P’s Compaq Corp. acquisition, a deal that at the time created
    the world’s largest seller of PCs. And to make matters worse, Dell had been
    selling H-P’s printers, essentially feeding a rival so it could more effectively

    Since then, Dell has reclaimed
    the top market share position and solidified that position last year. In the
    fourth quarter of 2004, it held 17 percent of the worldwide market, a full
    percentage point ahead of its chief rival, according to market tracker IDC.

    Dell began selling branded printers in
    March 2003.

    Three months ago, the company
    said, it was on pace to sell more than 5 million printers in its fiscal year,
    with sales of more than $1 billion when including ink, toner and related items.

    H-P still sells more printers _ about 10
    million a month _ and it shrugs off the effect that Dell printer sales could
    have on its business.

    But, analysts said,
    the “Dell Effect” in the imaging market will make it harder for H-P to prop up
    its PC division with profit from printers.

    Dell executives in the past mentioned the negative effect on
    its rival as a bonus beyond its sales and profit.

    Company spokesman Frink downplayed that Wednesday.

    “We’re focused on meeting customer
    requirements and creating value,” Frink said. “That’s how we go about