JPMorgan Tech Conference: Dell's Choice Was to Sell Low or Go Too Slow
Dell Senior Vice President Tom Meredith was not coy about his company's new enjoyment of the low-end market. "We had two choices: either drop margin and deliver roughly equivalent earnings while gaining share, or maintain margins at a historical level, not see a share gain and still not hit earnings," Meredith said.
Who needs the luxurious margins of the high end? Meredith reiterated Dell's plan to take market share by charging lower prices, sacrificing margins for business in this slow market for PC sales. Dell's decision is standing up to the test of time as chip powerhouse Intel (INTC - Get Report) has joined the low-low club with its new Pentium 4 chips selling for bargain prices.On the same day as Meredith's presentation at the JPMorgan H&Q conference, Dell slashed prices on certain desktop systems by 20%. "Why would we do that?" Meredith asked rhetorically. "Because we can." He had some nasty words to say about competitor Compaq's (CPQ) opposite strategy of going toward the high end. "Michael Capellas says he's renting market share," he says. "While he's renting market share, we're buying it." Meredith finally tightened his lips when asked about DRAM prices and whether Dell expected to see prices go up. The former Dell CFO chuckled and replied, "Why should I ever tell you I'm going to be paying more? The minute I say DRAM prices are increasing, my suppliers are going to be on the phone telling me the price is up. It's like an IQ test."
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