Is Dell Losing Ground?

When Dell announced this week that it would lower its earnings forecast because of slumping sales in the United States and United Kingdom, plus a $300 million charge to repair faulty circuit boards, it raised an inevitable question: Is Dell losing its luster?

Resellers say it's too soon to determine if Dell is headed toward a major downturn. But some financial analysts this week pointed out several holes in the direct computer maker's armor. Moors & Cabot, which lowered its Dell rating from Buy to Hold, questioned Dell's competitive position in the server market as well as customer satisfaction levels. Meanwhile, others say Dell is seeing increased competition from Hewlett-Packard, Lenovo and Acer, and has been hampered by defective Optiplex motherboards.

"Although Dell remains one of the highest quality names in technology, questions about growth rate amid a more competitive environment could take some of the luster off the venerable tech giant," according to a report from investment banking firm Robert W. Baird & Company.

Solution providers, however, have seen a noticeable decline in quality at Dell with both its products and service.

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"They used to be known for great quality throughout the '90s," says John Samborski, vice president of Aces Computers in Arlington Heights, Ill. "But when the economy went bad, they decided to scorch the earth with low prices and use the cheapest parts and equipment they could find, and it has caught up with them. Now their brand is KIA instead of BMW."

Samborski says it's much easier for his company to sell its own systems and PCs against Dell by emphasizing higher quality machines and better support services.

"We've won some big deals against Dell on our notebook computers, for example, because their customer support just doesn't cut it anymore, even with the cheaper prices they offer," Samborski said.

Bi-Tech Enterprises of Ronkonkoma, N.Y., also competes with Dell and has seen many customers complain about Dell's low-level technical support and services.

"They're certainly not happy about the lack of on-site services," says Bi-Tech president Al Rosen, "so in a lot of cases we'll come in and provide integration or repair services, which helps us get a foot in the door with those customers so that we can sell them our own machines."

Despite Dell's problems, however, Rosen still believes the computer maker will continue to be a dominant force in the channel for the foreseeable future.

"We still can't beat their prices," he says. "I still think a lot of people will continue to buy Dell because of their prices, regardless of the quality issues."