Jun 22 1999 11:32AM ET
More on Winners and Losers...
Dell: Still A Turk Among The Titans
by Eric C. Fleming
Stocks Reporter
"Dell's edge has been to beat out others with pricing,. ...
That philosophy doesn't work in the enterprise space, they
are more focused on service.".
-- Ashok Kumar, Piper Jaffray analyst
Dell Computer Corp.'s {DELL} stock has been foundering since the PC maker lost
its near magical ability to double its revenue and vault over "whisper" estimates. Yet
it still stacks up well, when compared with the competition, despite some opinions.
Pick a projection, prognostication or any other word for prediction and you'll
hear the same thing: PC demand has fallen and people are buying low-cost,
tight-margin boxes that Dell doesn't sell. It ain't necessarily so.
The next "fact" is that with so many smaller computing devices and Internet
access nearly everywhere, PCs themselves are being phased out.
Dell Computer chairman and CEO Michael
Dell on the company's Internet strategy from
the PC Expo in New York.
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Michael Dell countered in a recent Barron's article
that the opposite will prove true. PCs will remain the mainstay for nuts-and-bolts
applications and other computing tasks and the TV and other devices will
remain as entertainment or peripheral tools to keep our lives on track.
"We see good demand for PCs because of the global strength -- continued
strength in US and Europe and an upturn in the Asia-Pacific region," said
Andrew Neff, analyst at Bear Stearns.
Dell also thought that people will actually favor higher-powered boxes over
cheaper PCs, seeing that people always craved faster access to the Web, not
cheaper access. Dell doesn't address the sub-$1,000 box - its consumer PCs
start at $999.
Dell is offering “free” Internet service in Germany.
What most overlook is that there are two trends at work and that they are
concurrent - not at odds.
More people will begin using Palm Pilots, but they will still link up with their
PCs. Other people will use set-top systems for e-mail, but the PC will remain
an information resource and the TV will stay an entertainment unit.
The main union could be that the PC will run the utilities in the home, including
the home entertainment center. The bottom line is that the PC isn't headed
toward extinction any time soon.
However, average selling prices of its boxes have been winnowing away for Dell,
to $2,300 in its first quarter from $2,475 in the same period a year ago. So
Dell's been moving aggressively after the server market.
Servers are basically PCs on steroids, handling functions of many terminals, or
clients. Companies use them to handle linking computer networks to the
Internet as well as processing e-mail and printing tasks in an office. Dell has
been building out its server business as another arm in its body of products for
the commercial market.
Dell vs. IBM
Lining up next to IBM Corp. {IBM}, Dell has seen demand for its PCs meander
as Big Blue's sales have climbed back. IBM, the world's largest computer
maker, has reawakened as the sleeping bear of computing, and its roar is
deafening.
IBM's first quarter results showed that it can juggle software, services,
computers and be a force behind the Internet - reinforcing the mock acronym
"I'll Buy More." IBM also has deep pockets for research and decades of
experience, so it can provide high-end products to businesses and the service
to back it up. That's where Dell falls short.
"Dell's edge has been to beat out others with pricing," said Ashok Kumar,
analyst at USB Piper Jaffray."That philosophy doesn't work in the enterprise
space, they are more focused on service."
Without a service side, Dell can only hope for a toehold in the commercial
server market, possibly selling attachments, such as storage, to the big boys'
servers, said Kumar.
Dell may partner with service providers, counters Neff. Dell can easily ramp up
technology to offer enterprise servers, that are used to handle application
databases and other mission-critical functions. "I don't see them buying a
service business," said Neff.
Dell vs. H-P 52-week chart
Hewlett-Packard {HWP} is the second-largest computer maker behind IBM,
with more than 80 percent of its sales stemming from computer-related
products or services.
H-P is going through a schism, splitting its measurement and testing
equipment and its computer business. On top of that, Louis Platt, its long-time
CEO, is stepping down and the company plans a more aggressive push into
hardware and software that address its corporate customers' Web demands.
Dell vs. Compaq
Compaq Computer Corp. {CPQ}, the wounded bear, has been limping quarter to
quarter, illustrating what can happen when products don't match the market.
Compaq has taken charge after charge to dispose of outdated, overpriced PCs.
On top of this, Compaq has yet to see any benefit from its purchase of Digital
Equipment Corp. All this lead to the ouster of its chief Eckhard Pfeiffer in April.
As beleaguered as the company is, Compaq still remains the number three
computer maker and the top PC maker in the world - a stature that's difficult to
ignore.
Dell vs. Gateway
Gateway Inc. {GTW}, like Dell, has been caught in a doldrums as PC buying
has slowed. Gateway, with its consumer-friendly cow spot boxes, has long
addressed the home user and has recently begun dabbling in the corporate
market.
The South Dakota-based company sits behind Dell as the second-largest direct
seller of PCs in the U.S. But Ted Wiatt has a different course in mind for
Gateway. Wiatt is positioning the company as a kind of end result for those
looking to buy a PC, either in their 150 Gateway Country stores or on the Web.
Gateway put up $200 million in May for a stake in Net stock incubator CMGI
Inc. {CMGI}. Dell took an indirect approach, having bought a 4.9 percent stake
in Navisite, a privately held concern of CMGI that's likely to go public in the
coming year.
"Dell's taking a page from Intel's playbook," said Kumar, "putting together a
quasi venture capital arm." |
