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Tuesday, August 15, 2006

Dell Gets Burned DELL

Dell, a stock that traded at over $40 in the Summer of 2005, and not changes hands at $20, hardly need more bad news. The company has been blamed for being overtaken by rivals, like Hewlett-Packard, who have adopted Dell’s custom-built, internet-sold, fast-shipping model for PC’s. It has been besieged in the server business by IBM and Hewlett-Packard. Surveys show that its customer service has deteriorated and that its pricing schemes are so complex that consumers cannot understand them.

Dell’s business has been slowing. After rapid growth over the last three fiscal years when revenue rose from $41.4 billion in the period that ended January 30, 2004 to $55.9 billion in the period ending February 3, 2006, revenue growth has all but flattened. There had been talk just a year ago that Dell’s revenue could reach $100 billion a year.

Now, word comes that Dell is recalling 4.1 million laptops due to battery fire hazards. The fact that the batteries were built by a unit of Sony, according to the Wall Street Journal, will be lost on many consumers.

Dell needs to restart its business. It has received advice that it should open its own stores and brighten its computers so they are “cool” like the Mac. Probably the only reasonable solution now is that the company is going to have to pack more features into computers at a lower price point to differentiate itself from rivals like Lenovo, Acer, Toshiba, Sony and Hewlett-Packard. It may be a solution that tightens margins for a time, but, otherwise, the PC manufacturer may lose it lead in the market altogether.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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