PC Prices Declining as Component Costs Fall

by: Larry Dignan

Dell (NASDAQ:DELL) executives indicated that component costs fell dramatically in the last quarter and that’s going to translate into lower PC prices in the months to come.

Component costs—memory, LCD screens and the like—fell in Dell’s fiscal third quarter and gave Dell a nice margin boost. However, Dell CFO Brian Gladden said that those component price declines will work through the supply chain and ultimately lower prices.

Gladden said:

As we look at component pricing, we saw what we would call a more normalized commodity deflation environment in the quarter. And, as we think about how that trends going forward, we will continue to see a similar environment I think as we head into the fourth quarter. We will begin to see, I believe, that deflation really work its way through the supply chain and affect pricing over the next couple of quarters.

Gladden added that these PC price declines are likely to result in lower prices industry-wide. “As these component costs declines work themselves through the industry supply chain, we do expect the industry pricing environment to more fully reflect these changes,” he said. Gladden added:

There will be some areas where I think it will bottom out a little bit in maybe LCDs and hard disks as we see those markets play out. And then the third thing obviously is, as pricing works its way through, we would expect to see a little bit more challenging sort of competitive environment.

In other words, Dell pocketed the difference between component costs and PC prices this quarter, but vendors are likely to scrap harder for your business. Dell executives also added that the company is moving toward a “value-based pricing methodology.” Bottom line: The fourth quarter is likely to bring better deals for the PC buyer so don’t have an itchy trigger finger on a purchase.

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