Dell: No Room To Bask In Its Success - InformationWeek

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11/26/2003
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Dell: No Room To Bask In Its Success

Dell leads the pack when it comes to PCs, but its top competitors aren't far behind. Hewlett-Packard sells nearly as many PCs as Dell worldwide, and IBM is a close rival in important customer desktop buying criteria such as reliability and quality, as well as vendor reputation, according to InformationWeek Research's Analyzing The PC Vendors report.

Dell grabbed market leadership two years ago after a 17-year climb by leveraging extremely efficient supply-chain and direct-sales models, letting the company aggressively drop prices even during a market slowdown.

Dell's greatest strength in desktop PCs, according to the InformationWeek survey, is its reputation as a maker of quality desktops, its ability to keep prices low without sacrificing performance, and the flexibility with which customers can order customized PCs online. As a maker of notebook PCs, Dell is most recognized by InformationWeek readers for its reputation and favorable price/performance ratio.

chartWhen Progressive Corp. was looking to replace its 4-year-old Dell computers earlier this year, it took a good look at other vendors. The insurance company decided to keep buying most of its PCs from Dell. "Dell was very aggressive and didn't assume they were going to keep our business," says Joe Self, Progressive's director of client services and engineering.

Starting price wars against its competitors has fueled Dell's momentum in the PC market. The risk, of course, is cutting margins too sharply, limiting its ability to invest in product development. So far, customers don't seem concerned. Shipments of Inspiron and Latitude notebook computers during the company's third fiscal 2004 quarter, ended Oct. 31, increased 31% over the same period a year ago. Optiplex and Dimension desktop PCs were up 20% for the quarter compared with last year. The company expects its combined desktop, laptop, and server business to increase 25% in the fourth quarter.

But Dell's rapid growth has presented the company with challenges, particularly in the area of customer service. As Dell has become a major player with big businesses, some of its longtime small customers feel ignored, particularly those that aren't willing to pay for more-advanced services packages. Bob Kokinda, IS manager for lens manufacturer Balester Optical Co., says Dell has tried to be too much to too many. "They've got so many products and models, they have trouble keeping up with the changes themselves," says Kokinda, whose company recently decided to stop buying Dell PCs.

Other customers like the idea that Dell has branched out beyond PCs. "It's nice to have one vendor for your PC and server needs," says Bruce Rice, senior network administrator for Parker Hannifin Corp.'s North American pneumatic division, a manufacturer of fluid power systems. "Managing IT products from one source will play a bigger factor down the road."

Dell is mindful of its strengths and weaknesses. The company has always had a strong emphasis on quality for its desktops, which are its heritage, says Tim Mattox, VP of Dell client product marketing. "On the notebook side, we have less of a history" in providing quality machines.

Dell has worked hard to become a leading notebook manufacturer, and it ties with IBM in overall customer satisfaction, according to the InformationWeek study. Still, IBM beats Dell notebooks in key areas such as vendor reputation and customer service, and Dell ranks fourth in product innovation for notebooks--a stark contrast compared with how well Dell scored in most of the study.

Dell notebooks have come a long way, Mattox says. "Dell's notebooks from five years ago wouldn't meet our quality standards today." This has come through incremental improvements, including better docking-station technology for its Latitude C-Family lineup. With the newer Latitude D-Family notebooks, Dell has invested in a magnesium alloy frame, aluminum back panel, and steel-reinforced arms connecting the screen with the CPU.

Mattox also acknowledges that the company's "hypergrowth" has stressed its services capabilities. To compensate, Dell has pushed customers to address basic problems using its online-support Web site. Dell also offers tiered "gold" and "platinum" enterprise support services so customers willing to pay more for services receive a higher level of attention.

Illustration by Scott Laumann

Continue to: IBM: Notebook Innovation And Quality Come At A Price

Return to main story: Analyzing The PC Vendors

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