Dell Price Cuts Helping Only So Much

All this, Conigliaro said, suggests that the company is still searching for answers. Goldman Sachs makes a market in Dell shares and has received compensation for investment banking and non-investment banking services from Dell in the past 12 months.

In the past, Dell has been able to use the operating efficiencies inherent in its direct sales model to price its machines well below that of the competition.

But with sub-$600 desktops and notebooks now the norm across the industry, some investors question whether the playing field has changed and Dell's pricing model has reached a point of diminishing returns.

In a note to investors, Credit Suisse First Boston analyst Robert Semple wondered whether Dell had priced beyond the point of "elasticity," the point at which price cuts spur a corresponding increase in demand.

Dell's pricing tactics, wrote Semple, raise the question as to whether "an aggressive pricing strategy in an inelastic environment is feasible." CSFB makes a market in Dell shares and has provided investment banking and non-investment banking services to Dell within the past 12 months.

Dell's woes come as many industry analysts are predicting an industrywide slowdown in PC demand in 2006. And Dell, which has long delighted investors with faster growth than the overall industry, has suddenly found itself struggling to keep up.

According to industry research firm Gartner, Dell's worldwide PC unit shipment growth of 10% in the first quarter represented its worst performance since 2001. In the U.S., Dell actually lagged the region's average industry growth for the first time.

Analysts point to a variety of reasons for Dell's problems, including stiffer competition from a resurgent Hewlett-Packard(HPQ Quote), as well as Lenovo Group and Acer, both of which have recently stepped up efforts to take share in the U.S.