OT: AMD UPDATE: Dell Faces Challenges With Consumer Push
By Rex Crum
SAN FRANCISCO (Dow Jones) -- Dell Inc. is expected to unveil a set of long- awaited products Wednesday for the high-priced consumer market, but some analysts say the top PC maker faces big hurdles as it looks to sell more entertainment gear.
Ironically, those challenges stem from some of the very things that have long been assets to Dell, including its focus on beating rivals on price and its exclusive use of microprocessors made by Intel Corp.
Company founder and Chairman Michael Dell and Mike George, the vice president of U.S. consumer business, will show off the gear at an event in New York.
A Dell spokesman declined comment on the specifics of the announcement, but analysts expect it will pertain to what George in June referred to as "the Lexus of our lineup"- a group of high-end desktop and notebook computers and new digital televisions aimed at customers willing to pay a premium for their electronic equipment.
Round Rock, Texas-based Dell had focused its past efforts at business customers looking to buy powerful personal computers at affordable prices, a strategy that served it well against rivals such as Hewlett-Packard Co. (HPQ) and International Business Machines Corp. (IBM)
Now Dell is pushing into TV's and digital music players to boost sales growth. In those markets, however, it's coming up against rivals Sony Corp. and Apple Computer Inc. (AAPL), respectively, two companies with loyal customers and long experience satisfying consumer appetites for entertainment gear.
"Looking at their consumer strategy, they don't have the brand name that Apple and Sony (SNE) have," said Shaw Wu, of American Technology Research.
Wu points to last week's release of Dell's new DJ Ditty music player as an example of the challenges the company is up against in the consumer market. The $99 device can hold 220 songs and is being marketed as an alternative to Apple's iPod Shuffle. But Apple's dominant market position and ubiquitous iPod marketing campaign will force Dell to play catch-up.
"They released it without much fanfare," said Wu, who rates Dell shares a " buy." "They're trying to hit the iPod Shuffle, but Apple is already so strong there."
Another of Dell's strengths is its direct-sales model, which lowers manufacturing costs and allows the company to build machines that cost less than similar ones made by its competitors.
But high-end customers, who tend to be more technology-savvy, are less focused on price and more concerned about what their gear can do, said Mark Stahlman, an analyst with Caris & Co. who rates Dell a "buy."
"We're getting to a situation where customers are no longer driven by price alone," Stahlman said. "Things like widescreen desktops and high-performance graphics are falling into customers concerns."
Stahlman also said that Dell's reliance on Intel (INTC), which doesn't have a 64-bit desktop processor, had an impact on what was considered a disappointing second fiscal quarter in which Dell's revenue fell shy of Wall Street estimates.
"Their inability to upsell to the U.S. consumer in the July quarter was partly due to the fact that they didn't have any AMD products," Stahlman said.
Intel rival Advanced Micro Devices (AMD), has the lead over Intel in the area for the powerful 64-bit desktop processor market with its Athlon chips, according to Stahlman.
"There's a view that the Intel products are inferior," he said.
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