Walmart, Best Buy in Sub-$300 Laptop Price War

PC World

 

Walmart and Best Buy appear to have kicked off a price war in time for the back-to-school shopping season, with both retailers offering Compaq laptops with 15.6-inch screens for under US$300.

Walmart is selling Hewlett-Packard's Compaq Presario CQ62-219WM for $298 through its online store. Best Buy is selling a Compaq Presario CQ60-615DX for $299 on its website.

The cheap laptops have similar specifications. Both come with a single-core Intel Celeron 900 processor running at 2.2GHz and include 2GB of DDR2 memory. They also have 250GB hard drives, wired and 802.11 b/g/ wireless networking capabilities, DVD burners and Intel's 4500M integrated graphics.

The systems come with Microsoft Windows 7 Home Premium 64-bit OS and include other applications often referred to as bloatware. One notable feature absent from the laptops is a webcam.

Best Buy is also selling a $299 Toshiba Satellite C655-S5049 laptop on its website. That laptop also has a 15.6-inch screen and Celeron 900 processor, but includes 2GB of the faster DDR3 memory type.

The price war is similar to one that broke out before last year's back-to-school season, said Stephen Baker, vice president of industry analysis at The NPD Group. That battle ignited last July when Best Buy offered an Acer laptop for $299, and Walmart undercut the price by $1 with a Compaq machine.

"They are selling them because they drive traffic into the stores, provide great value to their customers [and] help each other compete against one another," Baker said.

The stores will keep at it for as long as PC makers supply them with products that allow them to hit those price points, Baker said. Cheap PCs may have tweaked configurations, by reducing the amount of memory or hard drive capacity, for example, to let the stores sell the machines for less.

But reviewers seem to be content with the products. On the Best Buy website, 463 reviewers gave the Compaq laptop an average rating of 4.5 out of 5 stars. On the Walmart site, 15 reviewers gave its $298 laptop close to a 5 star rating.

One Walmart reviewer said the discount laptops are good for basic productivity and Internet applications, but not for more demanding tasks.

"With an Intel Celeron 900 processor and 2GB of RAM, don't expect to be zipping through video editing apps, especially considering it is a single-core CPU," wrote one reviewer under the name noraaregnilc.

Dell Forecasts Soft Demand, but Rivals Are Upbeat

Dell Inc. said Tuesday it is seeing "further softening" in global demand, raising questions about the health of the technology industry and fresh concerns about the computer maker's turnaround efforts. Dell shares tumbled 11%.

The company's finance chief, Brian Gladden, told investors that August, typically a slow month for Dell, was particularly bad this year, and "what's changed is we haven't seen it snap back in September."

But there are signs other large tech companies, including Dell's biggest rival, have so far been better able to weather the economic downturn. On Tuesday, Hewlett-Packard Co. Chief Financial Officer Cathie Lesjak told investors the company is "very confident" it can hit its current quarter profit target. Shares of H-P climbed nearly 7%.

Dell is in the midst of an effort by founder Michael Dell to revamp the Round Rock, Texas, company's business model. The changes, including selling PCs and refurbished Dell notebooks through retail stores, have yet to pay dividends.

"The company's inconsistent performance and lack of confidence means there's a lot of uncertainty in the turnaround," said Bill Kreher, a securities analyst with Edward Jones.

Also Tuesday, John Chambers, the chief executive of Cisco Systems Inc., held to the networking company's long-term revenue growth target, despite the economic slowdown. "We've never been more comfortable with our 12% to 17% growth long-term projection than we are right now," Mr. Chambers said at an analysts' conference.

Despite such positive comments, some analysts worried that the technology sector -- which has so far weathered the economic slowdown -- is now increasingly vulnerable to a deceleration in spending, especially with the collapse of some big clients on Wall Street such as Lehman Brothers Holdings Inc.

Shebly Seyrafi, an analyst at Calyon Securities, estimated both Dell and H-P get about 15% of their revenue from financial companies. But, he added, H-P has more insulation from the financial-services turmoil than Dell, since H-P offers technology-consulting services. Dell, meanwhile, is largely dependent on hardware like PCs and server computers for revenue, and it has often found it necessary to reduce prices -- and therefore profit margins -- to boost sales.

While financial services firms make up just 18% of overall U.S. tech spending, "there will be an impact" on tech companies from the financial sector crisis, said Andrew Bartels, a Forrester Research analyst. Financial firms are projected to cut their tech spending by several percentage points this year, he said, unlike other industries that are still growing their tech spending. On Tuesday, Forrester dropped its forecast for 2009 growth in U.S. tech spending to 6.1% from 9.4%, citing the financial industry turmoil and the slowing economy.

Dell isn't the only firm feeling the pinch. Ingram Micro Inc., which distributes computer products made by companies like H-P and Cisco, said Tuesday it is seeing weakening demand. The Santa Ana, Calif., company cut its third-quarter outlook, saying "economic softness is continuing into September, which is exerting greater pressure on operating margins."

By: Justing Scheck, Ben Worthen, and Pui-Wing Tam
Wall Street Journal; September 17, 2008

Dell's Net Slips Amid Push Into Asia

Computer Giant's Drive Into Emerging Markets Leads to Discounting, Toll on Profit Margins

Dell Inc. reported a 17% drop in quarterly profit, raising questions about the company's 18-month turnaround effort and whether a slowdown in business spending is spreading to Europe and Asia.

The results sent shares down 14%, or $3.48, to $21.73 at 4 p.m. Friday on the Nasdaq Stock Market.

Dell's declining profitability was a negative counterpoint to rival Hewlett-Packard Co., which last week reported a 14% jump in quarterly profit.

While Dell's report is likely to renew worries about business spending, the Round Rock, Texas, computer giant acknowledged that some of its woes were the result of its effort to reignite growth, something Chief Executive Michael Dell called "an imprecise process" in a conference call with analysts. He said that the company was "a bit too aggressive" in some of its businesses. Profit margins fell during the quarter.

Dell showed signs of solid demand, reporting an 11% jump in revenue for its fiscal second quarter ended Aug. 1 from a year earlier. The company, best known for business PCs, said shipments of consumer machines rose 53%.

But much of that growth didn't translate into new profit, as the company has faced falling PC prices and heavier spending on marketing. Chief Financial Officer Brian Gladden added that Dell also is seeing a slowdown in tech spending that is beginning to metastasize.

"It really started with big corporations, and we've seen slowing in state and local government spending, small to medium sized businesses as well," Mr. Gladden said in a conference call with reporters.

The company expects "continued conservatism" in business tech spending in the U.S. as well as Europe and "several countries in Asia."

Dell has lagged H-P in exploiting sales to Asian countries, but has been moving to catch up in markets that include China and India.

While commercial sales in the Asia-Pacific region and Japan have been brisk -- rising 16% in the period -- Dell has had to sell lower-priced PCs in those markets and spend heavily on advertising.

Bill Kreher, an analyst at Edward Jones, said he didn't expect such poor results, and said he is concerned that Dell will continue having trouble in emerging markets. "The weakness in Asia came as a big surprise," he said. "We didn't hear that type of disclosure from other companies like H-P."

Dell, one of the most consistent performers during the early part of the decade, ran into a series of problems that led Mr. Dell early last year to return to the CEO post after a three-year hiatus.

While he was away, the company lost the No. 1 position in global PC sales to H-P, and had some highly publicized problems with customer service.

The company, once known for selling exclusively through the Web and via telephone orders, subsequently moved into retail stores, and has begun emphasizing style and color in its consumer notebook PCs. Such efforts resulted in increased market share and a 28% jump in revenue from consumer PC shipments in the second quarter from a year earlier, but "profitability was roughly break even" in the consumer division, the company said.

Discount laptop sales remained strong, advancing 26% in the quarter from a year earlier. But sales of desktop computers declined 2%.

Unlike H-P, which makes money on software and technical services in addition to computers, Dell is almost entirely dependent on hardware. That means dropping PC prices have had a particularly big impact on its business in recent months, said Lou Miscioscia, an analyst at Cowen & Co. Dell's marketing spending also impacted its profitability. The company's gross profit margin declined to 17.2% in the recent quarter from 18.4% for the quarter ended in May and 19.9% in the year-earlier period.

Since Mr. Dell's return, the company has started revamping its manufacturing, increasing its reliance on contract PC makers and shutting down a factory in Texas. So far, though, such changes have been offset by rising expenses in marketing and investments in new product development.

Mr. Gladden said he holds meetings every other week to discuss Dell's expenses and said the company will continue a cost-cutting effort that began last year. He said Dell should hit its target of eliminating more than 8,800 jobs later this year. Investors will be paying close attention to ongoing cuts, said Mr. Kreher of Edward Jones. If PC and server prices continue falling, profit margins could be squeezed even more.

Investors will be paying close attention to ongoing cuts, said Mr. Kreher of Edward Jones, since PC and server prices are expected to continue falling, further squeezing profit margins.

The company said net income for the fiscal second period was $616 million, or 31 cents a share, compared with profit in the year-earlier period of $746 million, or 33 cents. Revenue rose to $16.43 billion from $14.78 billion.

By: Justin Scheck
Wall Street Journal; August 29, 2008

Dell Still in Need of Cost Control

It has been more than a year since Michael Dell returned to Dell, Inc., but the company doesn't seem to be rebooting very quickly.

Mr. Dell, founder of the computer-making giant, has been overseeing a restructuring since he returned as CEO in January 2007 after a three-year hiatus.

Mr. Dell has replaced executives, pursued new product lines and cut more than 5,300 employees, with at least 3,500 more to go.

Yet as of the end of January, costs were still a problem. Dell's selling, general and administrative expenses were up 50% at the end of the last quarter compared with two years ago, while revenue was up less than 10% over that period. Some of this may be due to current economic conditions, in which many people have turned to buying discount laptops from a variety of online sellers.

Analysts don't expect much better in the current quarter, which Dell will announce after Thursday's close of trading. They forecast net income of 32 cents a share, off about 6% from last year, due to stubbornly high costs, competitive pricing and weaker U.S. business and consumer spending.

“Dell is a show-me story,” says Toni Sacconaghi Jr., a Sanford Bernstein analyst. While he likes it in the long run, it hasn't shown yet.

By: Karen Richardson
Wall Street Journal