What Happened to Dell?

This year, we have grown accustomed to pulling up a chart and seeing a full year price slide. Across most industries, each and every chart has nearly an identical trajectory. Of course, some companies are still high fliers who are flourishing in this economy, including Wal-Mart (WMT) and McDonald's (MCD). However, what happened to Dell (DELL), the tech company that took the world by storm with made-to-order computers?

What Brought Dell Down?

Very few people realized how vested tech stocks are in the economic situation. Dell is primarily a made-to-order computer company; however, much of its operation, and approximately 50% of sales, is derived from the business sector. A recessionary slowdown affects corporate budgets and the prospect of buying a new laptop for “business trips.” The recent earnings report from Dell paints a gloomy picture, as profits fell by over 48% in the last year (see conference call transcript).

Where Is the Money?

In a recession, consumers typically think smaller and buy less. This phenomenon holds true in the PC business, where computer users are now buying popular netbooks and other light, inexpensive notebooks to save money. The netbooks, which have travel-sized screens and keyboards, are popular with users who want to buy a quality laptop for approximately $300. Unfortunately for companies like Dell, netbooks are some of the lowest margin PCs, with little room to raise prices. Competition is fierce, and on these mini-machines, a difference of $20 in price seals sales.

Is the Dell Era Over?

While its numbers may have slumped, Dell’s glorious era is far from fading. Dell's computers are shipped with Microsoft (MSFT) operating systems, which open the door for a sales boom with each new release. Microsoft's new product, Windows 7, is already out for developers in beta and will soon be launched OEM and retail to computer users. Although many PC owners were outraged with Vista, and some even refused to buy the operating system, a Windows 7 boom could be excellent for Dell. Many PC makers have kept the Windows XP operating system alive, but its low costs keep profits equally low.

Dell remains well positioned in the personal computing business and needs new software to boost its profit margins. Windows 7 is the perfect fit for this company's bottom line and should help Dell recover when the new system is released later this year.

Disclosure: I own no stock in Dell.

Comments

[ravenseye:]

Dell should offer alternatives to MS products. As time goes on, most of the MS products aren't really needed and customers are looking for other things. You can walk into an electronics shop and choose from a wide variety of tv's, camera's...you name it, but only one operating system. It's strange. Dell needs to branch out. Vista failed because it was slow eye candy and Windows 7 will replace older equipment but neither is needed. Office is proprietary and expensive and people are still outraged over being stuck with IE even if they don't want it. As long as Dell pushes MS, they'll be pushed aside in the long run.

Mar 05 07:24 AM

[Jeff Noel A...:]

Dell website .. alternative OS.. read it.. it starts with a U.

Mar 05 10:39 AM

[loquitur:]

Remember this bit of nostalgia:

blogs.zdnet.com/Apple/...

Mar 05 12:33 PM

[chano:]

Irrelevant, short-sighted article from someone off-planet, it seems to me. The best future for computing lies in the cloud. For most businesses and many netbookers, it's all in the utility office and 'net browsing software spaces stupid. And Dell has none in any space. And it is way too late to do anything about it now.
Boo hoo.

Mar 05 01:15 PM

[who:]

I agree with a lot of what is said about MS, but most software and hardware are made compatible with MS and not so much with other systems. This I found out when I bought a netbook with Linux.

Desktop may comeback in vogue due to costing less then a notebook and equal to netbook. Unless you need and really want a netbook a desktop is much cheaper. Just bought a desktop with quad processor and 20 inch monitor for a price of mid-end notebook or high-end netbook.

Mar 05 11:23 PM

[lefty37:]

The only thing that happend to dell was---compitition pricing and selection.
While shopping for my new computor, I wanted a Dell. But bought HP for about 1/3 less.

Mar 06 07:20 AM