End May Be Near For Dell's Component Price-Slashing

In some cases, Round Rock, Texas-based Dell dropped prices by 100 percent and bundled free LCDs with some low-price systems. In other areas, Dell provided full desktop systems for less than $300. Many system builders had described Dell's pricing strategy as outrageous but unsustainable.

Dell CEO Kevin Rollins, talking to analysts earlier this month after the company reported its quarterly earnings, suggested some component pricing essentially has hit bottom.

During the quarter, Dell saw both strong availability and "cost reduction [of] about a half percent a week" for components that the company sourced, Rollins said. That is slowing down, he said.

"The component-cost environment has played out," Rollins said. "We continue to see [price] reduction on memory and displays. We expect that to moderate here in the next quarter."

Despite the slash-and-burn pricing strategy, Dell still managed to grow its sales to $13.4 billion for the quarter ended April 29, compared with $11.5 billion in the year-ago quarter, and its profit to $934 million from $731 million a year earlier. Dell executives pointed to growth in its European sales, though, as a key factor for the performance.

System builders said they did not believe Dell could continue its pricing strategy indefinitely, and some suggested there were already signs the company was pulling back. "From what I can tell at this time, Dell has down-shifted a gear in their openly hostile bidding strategy," said Tom Johnson, president of Western Scientific, San Diego.

And, even with aggressive pricing, some system builders believe there are some opportunities that will remain out of Dell's grasp.

"We strongly believe that there are a lot of business opportunities in manufacturing white-box systems and servers for other VARs, given our company's strong engineering and production capabilities," said James Huang, product marketing specialist at Amax Information Technologies, Fremont, Calif.

"We believe that this is one area where Dell is weak, since they mostly offer standard configurations built in large quantities, whereas we can build customized white-box systems with minimal order quantities," he said.