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5/18/2006
06:39 PM
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Dell Vows More Price Cuts To Regain Momentum

Dell's top executives said they were caught off guard by the pricing competitiveness offered by rivals. Their goal now is to come out shooting, on both the customer service and pricing fronts, to regain any lost market share.

Dell's strategy to "re-ignite" its growth will combine long-term aggressive pricing and a $100 million investment in its customer service operations, company executives said.

During a conference call with financial analysts, Dell's top executives said they were caught off-guard by the pricing competitiveness offered by rivals, and that its goal now is to come out shooting to regain any lost market share.

"We'll continue to do what it takes to capture more than our fair share of growth in the global IT market," said Dell Chairman Michael Dell. "[CEO] Kevin [Rollins] and I as well as the rest of our leadership team are sure we are making the right changes and intend to stay the course."

Company executives all but admitted they were caught flat-footed by price aggressiveness from rivals, including Hewlett-Packard and Lenovo, and that they were hurt when unit shipments failed to grow as much as expected as a result. Their planned actions are aimed at reversing course.

"For us to have eight or nine points of margin when their profitability was very low and have growth above the industry, all of these things became a little difficult to do all at the same time," said Dell CFO Jim Schneider. "It's not like we're trying to ignite some kind of price war, but [we'll] see where we can get."

In addition to aggressive pricing, Dell's new, heavy investment in customer service -- including the addition of 2,000 new employees for that function -- is aimed at quelling frequent complaints about shoddy service and support that have grown over the past year.

"I think it's going to be the sustained, thoughtful application of where to grow, how to grow," said Schneider. "We intend to take the goals of aggressive pricing, at the same time improving product quality, improving our overall service and support. We will be in better strategic shape in the long run. Our profitability will be better."

Dell executives made the remarks following release of the company's first quarter results. The company reported sales of $14.2 billion and operating income of $949 million for its first quarter -- numbers in line with Dell's revised projections from last week.

Asked by one financial analyst during the conference call whether the company would entertain the idea of two-tier distribution in "emerging geographies," Rollins shot down that idea immediately.

"We're the direct company," he said.

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