Dell: Two Top PC Makers Will Die This Year

Dell Computer finally gave in to the sagging PC sales that have wracked the rest of the industry, announcing that financial results for its fourth quarter would be lower than expected. But CEO Michael Dell had a bombshell of his own for the reeling PC industry, warning that at least two of the top ten PC makers would not be in business by the end of the year. As one of the biggest PC makers of the planet--Dell Computer is currently number one in America and barely trailing Compaq worldwide--the company is lowering prices, but says it will stay profitable because of its close relationship with parts makers. Not coincidentally, Dell's plan to spur sales may also play a major factor in the industry shakeout its CEO predicted.

"I think that there will certainly be some consolidation and competitive shakeout," Dell said in a conference call with the press Monday. The company reported that fourth quarter revenues, which will be formally announced February 15, would come in around $8.5 to $8.6 billion, just missing the $8.7 billion mark that was previously expected. Overall, Dell's news wasn't all bad: The company is closing the distance between its worldwide market share and that of Compaq Computer, and the company is still growing at a faster rate than any other PC maker. Dell grew more than 40 percent in the fourth quarter, year-on-year, compared with an average of only 9.2 percent for the entire industry. "This performance clearly distinguishes us from other computer-systems companies, given current realities of the global economy and computer-systems market," Dell noted in his company's financial announcement this week.

But Dell's scorched earth policy on pricing has come at a price. The company's profits are down, and some analysts are unexcited about Dell's strategy of killing competition through lower prices. But Dell CFO James Schneider blames "market dynamics" and says that his company's earnings would have fallen to almost $8 billion had Dell not continued its aggressive pricing strategy. And certainly Dell's business model has been nothing if not consistent over the years, when the company has often thrived in lean times. The company, and analysts, remain upbeat about the company's prospects in 2001 and beyond.

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