As Dell Earnings Dive, Channel Beckons

By John Hazard  |  Posted 2006-08-18 Email Print this article Print
 
 
 
 
 
 
 

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News Analysis: Dell's earnings are down more than one-half billion from a year ago, prompting analysts and resellers to ask if Dell must finally embrace a formal channel strategy, at least in Asia.

Dell reported the week of Aug. 14 that second-quarter earnings were down more than $500 million from a year ago, prompting analysts and resellers to blame part of the slump on Dell's direct-only model, especially in Asia and consumer markets.

The company has held its ground relative to competitors in the North American enterprise and SMB (small and midsize business) markets, analysts said, but the growth in PC shipments is coming from Asia and from consumer purchases, markets where competitors Hewlett-Packard, Lenovo and others have closed on Dell's competitive prices and reputation for reliability, analysts and resellers told The Channel Insider.

Customers in those markets are now free to be more selective about their route to market and are choosing resellers and retailers more often, said Momin Khan, a PC analyst at TBR (Technology Business Research), in Hampton, N.H.

In those markets, "They have two choices," Khan said. "They can either endorse resellers or wait for customers to change their buying habits."

Dell's second-quarter profit dropped to $502 million from $1.02 billion in the same period a year ago, executives reported Aug. 16. The PC maker had $14.1 billion in sales, which were up 5 percent from a year ago. The company's previous forecast had been sales of $14.2 billion.

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In the United States, Dell saw shipments grow 10 percent, barely faster than the market, and increased market share worldwide to 19.2 percent, according to figures from IDC, in Framingham, Mass. Competitors Hewlett-Packard, Lenovo and Acer, the No. 2, 3 and 4 PC makers worldwide, respectively, all gained ground on Dell, which can be attributed in part to the channels and retail strategies of those manufacturers, said Richard S. Shim, a PC analyst at IDC.

HP shipments grew 13 percent, giving a 15.9 percent market share, up from 15.4 percent in the second quarter a year ago. Lenovo shipments rose 12.8 percent for a 7.7 percent market share. Acer grew fastest, with shipments up 35.7 percent for a 5.4 percent market share.

"They've reached the limits of price elasticity," Kahn said. "PCs are fairly comparable in price wherever you buy [them] and in those markets they're choosing to buy from resellers."

HP and Lenovo have made investments in their channels that are paying off, Shim said.

"But [Dell is] committed to [direct sales in Asia] … the same way they were committed to it over here before it caught on," Shim said. "There's a lack of infrastructure and education about buying directly over there. It's not what they're used to. It will take time to catch on, but they're committed to it. They aren't converting"

Meanwhile, Dell's focus on Asia and Europe, where the channel is king, has distracted the company from its areas of chief advantage: cost and support.

Click here to view exclusive channel research from Amazon Consulting.

Dell surprised the market earlier this week, recalling 4.1. million laptops because their Sony-made batteries were a fire hazard. The recall presented a potential problem for VARs that are facilitating Dell sales to customers as part of a de facto channel.

Resellers selling under the Solution Provider Direct program were able to point their customers directly to Dell as the PC owner, as in most vendor channels, resellers told Channel Insider. Officially, Dell considers the purchaser, end user or VAR, the owner of the unit, but the SDP program, which is still considered a pilot program, allows VARs to resell units.

"Where there are so many notebooks in the field with our clients, it would have been a logistical nightmare to get them all together and do it for them," said MJ Shoer, president of Jenaly Technology Group, of Portsmouth, N.H. "We asked each client to contact every user in the company with a Dell notebook and instruct them to read our message and follow the steps," as with any other vendor, Shoer said.

 
 
 
 
 
 
 
 
 
























 
 
 
 
 
 

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