This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Woe Is H-P as Dell Cuts Prices on PCs

Only a day after Hewlett-Packard (HPQ - Get Report) admitted flubbing an attempted price war with rival Dell (DELL - Get Report), Dell decided to exploit the misstep by pushing through its own big round of price cuts.

The Round Rock, Texas-based computer hardware maker announced price reductions of as much as 22% across its computer line, beginning today.

The price cuts apply to both enterprise and consumer PCs. For example, prices were reduced 6% on Dell's Dimension brand of desktops, and 3% on Inspiron notebooks.

Dell's move came only a day after H-P admitted it had cut prices too deeply on its own PCs -- below Dell's prices, at times -- in a backfired attempt to compete. The move hurt H-P's revenues and dumped its computer division into the red. To fix matters, H-P implied on an earnings conference call Tuesday night that it would raise prices.

That makes Dell's next-day price cuts look all the more like a deliberately timed tactical response.

"It's really sort of amusing that it could occur two minutes after H-P admitted they didn't know what they were doing in the consumer channel," says analyst Charlie Wolf of Needham & Co. "H-P adjusted prices, meaning they pushed them up, and now Dell goes down with its own prices ."

Unlike H-P, Dell can afford to offer such discounts because its business model is based on direct sales, which reduces its costs and makes it easier for Dell to be profitable on lower-priced sales. The direct sales model also makes it easier for Dell to push through immediate cost reductions; by comparison, H-P makes most of its sales through dealers, who carry some five to six weeks of product inventory.

In the long run, Wolf calls today's round of price cuts "incrementally positive" for Dell. "They're out to weaken H-P any way they can," he says. "One thing to remember is that the price sensitivity of consumers and others is enormously high, so you could have modest price declines leading to rapid share shift between brands that are essentially identical, running on Windows and Intel."

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
DELL $0.00 0.00%
HPQ $33.17 -2.40%
AAPL $126.87 0.36%
FB $80.01 -1.50%
GOOG $567.61 -1.30%

Markets

DOW 17,856.78 -278.94 -1.54%
S&P 500 2,071.26 -29.78 -1.42%
NASDAQ 4,927.37 -55.4390 -1.11%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs