It might have taken savvy consumers a little bit of digging to find the deals, but on Monday, Dell (NASDAQ:DELL) apparently offered a few seriously cut-rate computers for those shoppers who were lucky enough to find them. It's an interesting move when you consider the fact that Dell's had a tough time of it lately, between its flagging stock price and lackluster earnings -- and one of those great examples of strategies that are great for consumers but troubling to shareholders.
According to CNET, Dell offered some unbelievably low prices on a few of its models -- although the deals weren't exactly easy to find on the website. An Inspiron notebook could be had for $699 (its usual price is $1,249), undercutting even an equivalent machine from a PC maker known for bargains, Gateway (NYSE:GTW). Then there was a Dell Dimension desktop for $349 (and if consumers decided they could forgo the 19-inch flat-screen monitor, a version with a 17-inch CRT monitor was available for $299 -- that's the same price as a 30-GB fifth-generation iPod, for goodness' sake).
Like I said, the deals were apparently difficult to find, and these were only one-day specials. However, CNET pointed out that Motley Fool Stock Advisor selection Dell has been known to hold such one-day specials and then offer similar specials on subsequent days.
Last quarter, Dell lost market share to rivals, with Hewlett-Packard (NYSE:HPQ) improving its share, so it's not too surprising that it might be thinking of ways to woo customers. Despite the fact that Dell recently bought up Alienware, which makes pricy game-centric machines, it also faces plenty of competition from all sides. Lenovo -- which bought IBM's PC business -- recently placed ThinkPads in Best Buy (NYSE:BBY) stores, which was seen as an attempt to woo not only ThinkPads' usual corporate customers, but also consumers at large. Then of course, there's the underdog in the computing market, Apple (NASDAQ:AAPL). While some argue that the "halo effect" on Macs wasn't too impressive last quarter, Apple fans (and Apple management) theorize that maybe many people are simply waiting for the new Macs with Intel (NASDAQ:INTC) chips.
Losing market share is indeed an important issue for Dell. Then again, so is the concern many shareholders might be mulling at the moment -- the need for deep discounts to remain competitive and the subsequent negative effect on margins. In fact, last quarter's results illustrated Dell's falling margins (although it's worthwhile to note that Dell traditionally has excellent profit margins in the industry). Regardless, cut-rate Dells may not necessarily be what investors want to see at the moment, although the CNET article did point out that discounting on components is likely driving moves like this one, as companies seek to get rid of excess inventories.
Many PC makers have name recognition but still compete on price. (The exception, of course, is Apple -- it may remain a computing underdog, but it has certainly achieved an emotional bond with its customers, who don't mind its pricing and are willing to pay up for its products.) Given some of Dell's recent woes and the encroachment of low-priced competition, intimations of price wars or the idea of additional lost market share are enough to make the coolest investors a little uneasy.
For more on Dell, see the following Foolish articles:
- Fools recently dueled over Dell's outlook.
- Read about Dell's Alienware invasion.
- Revisit the latest quarterly earnings from Dell.
Dell and Best Buy are both Motley Fool Stock Advisor recommendations. (Dell is also a Motley Fool Inside Value pick.) To find out what other stocks David and Tom Gardner have recommended to subscribers since 2002, click here for a 30-day free trial of Stock Advisor.
Alyce Lomax does not own shares of any of the companies mentioned.
