Dell Price Cuts Helping Only So Much

Dell's strictly Intel(INTC Quote) processor-based machines also are cited as a major weakness, given that most people consider Advanced Micro Devices'(AMD Quote) microprocessors to be technologically superior for both desktop PCs and corporate servers at the moment.

Becker Capital Management's Pat Becker Jr. believes that Dell's latest financial miss means the company can no longer put off selling machines that feature AMD chips.

"I don't think [having AMD machines] solves their problems," he says, "but on the corporate side, if they have a customer that wants an AMD-based server, they're going to be able to meet that demand," instead of watching the sale go to a rival such as H-P. Becker's firm has a position in H-P.

In March, Dell acquired Alienware, a maker of high-end gaming PCs that use both AMD and Intel processors. Though Dell will now apparently sell AMD-based systems through its Alienware product line, the company has given no indication that it will use AMD chips in Dell-branded systems.

Bill Gorman, the vice president of equity research at PNC Advisors, said his firm closed out its position in Dell after the company's previous negative preannouncement in October 2005. He believes the company needs to grow by continuing its sales efforts overseas, improving its customer service and strengthening its product lineup among other things.

"The bottom line is there are no quick answers to what they need to do," says Gorman. "I think price cuts are at best a partial answer to what Dell needs to do."

And with the continued consolidation of the PC market, there's less available market share for Dell to grab with price cuts.

"Usually the white-box companies are the most vulnerable, but I don't know if there's enough share there," said Gorman.

Becker, of Becker Capital Management, believes that it's too early to make the call as to whether the price cuts can reverse Dell's fortunes.

While Dell's price cuts did not affect first-quarter results, Becker believes that it may take some time for the cuts to manifest themselves in Dell's financial results.

The second quarter will be the moment of truth, he says, demonstrating whether Dell can still cut prices to get an acceleration of revenue and market share.

"If that doesn't happen," says Becker, "maybe we'll be into a new paradigm."