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Rivals chip away at Dell: With competitors gaining, firm may need to upgrade its strategy
(Dallas Morning News, The (KRT) Via Thomson Dialog NewsEdge) Jun. 10--While Dell Inc. got blindsided by changes in the market, the Texas computer giant's competitors made gains.
Hewlett-Packard Co., the current darling of Wall Street's technology investors, has chipped away at Dell's dominance. And others are threatening to gain ground.
Dell's rivals positioned themselves in segments of the market that were growing. Dell, meanwhile, didn't move quickly enough to take advantage of those surges, analysts say.
"They're not getting their fair share of growth," said Roger Kay, president of Endpoint Technologies Associates, a research firm.
Dell shares are down about 37 percent from a year ago, closing Friday at $25.26. H-P shares have risen nearly 40 percent in the same period, closing Friday at $29.94.
Dell, based in Round Rock, remains the world's biggest computer seller, and it still has time to adapt to changes in the market. Already, it has signaled a willingness to make changes, announcing plans to open its first two retail stores and introducing a unique-looking portable PC for consumers.
But Dell has refused to alter its underlying business model, selling computers directly to customers over the phone or through the Internet. Even the new retail stores, including one at NorthPark Center in Dallas, won't carry any inventory.
Shoppers will be able to test Dell's products, then order their selections for delivery.
H-P and Gateway Inc., meanwhile, have been luring consumers the traditional way, offering their products in big electronics stores.
That retail strategy used to seem old and slow, with H-P and Gateway struggling with inventory decisions while Dell nimbly responded to shifts in demand.
Now retail is the place to be.
U.S. shoppers have helped keep the PC industry growing quickly for the last two years while corporate sales climbed more slowly.
And computer makers have worked closely with retailers to make the selling process more efficient, keeping costs down to compete with online merchants like Dell.
"We've tried to take as much of the guesswork out and lower as many of the variables as possible," said Bob Davidson, Gateway's senior vice president responsible for retail.
The California-based company, which also owns the eMachines brand, closely analyzes which products are selling the best, gleaning data from retailers and comparing its offerings with those of rivals in Sunday newspaper ads.
Adapting to survive
H-P, also based in California, has gotten more efficient and responsive to changes in demand. The company has also spent wisely, said John Dayan, marketing vice president in H-P's personal systems group.
The company continues to invest in research, coming up with features such as LightScribe, a type of DVD drive that can burn and label discs. And it has launched a marketing campaign targeting shoppers who use computers for entertainment.
H-P's campaign isn't meant for computer shoppers looking for the lowest price.
Some of the ads don't even show its products or talk about their prices, noted Sam Bhavnani, research director at Current Analysis.
"H-P is actually changing as a company. They are trying to move toward a model where, similar to Apple, they're showing customers how their PCs or other devices make their lives easier," Mr. Bhavnani said, referring to Apple Computer Inc. "Dell seems challenged with that."
And Dell is facing obstacles on other fronts.
The company has been looking to expand internationally, building up strength in the fast-growing markets of Europe and Asia. But it has met stiff competition from the likes of Acer Inc. and Lenovo Group Ltd.
Mixed results
Dell's direct-selling model has worked well in some countries, such as the U.K. But that's no guarantee it will work everywhere.
In some cultures, computer buyers trust retail chains or resellers and wouldn't buy a computer without seeing it first, said Mr. Kay of Endpoint.
In those places, such as Latin America or southern Europe, Dell's competitors often have an advantage.
"Each individual developing market is its own story," Mr. Kay said, and it's often hard to predict where Dell's model will work. For instance, the company has had great success in Brazil but has struggled in Italy, he said.
Dell should probably tweak its business model in countries where it is having trouble, Mr. Kay said.
Dell has made changes in other areas.
It has put marketing muscle and investment behind its XPS line of high-end computers, trying to create a brand known for entertainment.
In March, Dell said it would buy Alienware Inc., a maker of computers for video-game enthusiasts.
Changes coming
Other changes are in the works, including investments in customer service and products yet to be introduced. And Dell is adjusting its prices to compete more effectively, chief executive Kevin Rollins told analysts last month on a conference call.
The company continues to invest heavily in foreign markets. It plans to open its first manufacturing plant in India by the end of this year.
But it may take some time to catch up to the changes in the market, Mr. Rollins said.
"The expectation of being able to turn it on a dime is kind of irrational," he said.
E-mail charrison@dallasnews.com
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