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The Round Rock, Texas, PC maker on Aug. 17 said it would launch a line of Dimension consumer desktops containing AMDs Athlon processors in September and add two-processor AMD Opteron models to its PowerEdge server line before the end of the year.
The moves expand on a previously announced plan to offer multiprocessor Opteron servers, this year. But Dell the news for Dell was not all good.
After announcing on Aug. 14 a massive a recall of 4.1 million notebook battery packs, the company said on Aug. 17 that it facing a probe by the U.S. Securities Exchange Commission. The SEC requested information related to revenue recognition, for example, but has not accused Dell of any wrongdoing.
Dell executives downplayed the probe as an informal affair thats expected to be immaterial to its business to analysts and reporters. Instead, they focused on the companys road ahead.
After reporting quarterly earnings per share of 22 cents per share on revenue of $14.1 billion for its second fiscal quarter after the close of Wall Street on August 17—figures that matched its lowered expectations for the quarter—Dell says its working to balance its market share and profitability goals while facing down a series of its own missteps in customer service and pricing along with a slower-growing global PC market and stronger competitors in the likes Hewlett-Packard.
The market “is slowing, theres no debate on that one at all. I think the question is how you take share and do you keep up with the market growth rate. I think were going to hang in there and continue on that trajectory, despite what anyone else says,” said Kevin Rollins, Dells CEO, in a conference call with reporters following the earnings statement.
Despite seeing market share gains in geographies such as Asia and what it says are customer service satisfaction improvements, “We are clearly disappointed with our financial results,” Rollins said later in a conference call with analysts. “We can do better and we know that.”
He said during the analyst call that Dell could have better managed its pricing versus profitability during the second quarter and thus left some profits on the table during the period, he said. Dell warned on July 21 that it would report lower than expected second quarter earnings due to aggressive PC pricing in the corporate space.
Dell, doesnt intend to relent on market share, however, Rollins said, meaning the company will continue to price its products aggressively.
Dells top executives believe that with new pricing methodologies, such as eliminating rebates for consumers and new sources of component price cuts in both processors and other areas such as memory will allow it to counterbalance aggressive prices thus continue its growth while also managing profitability. Improvements in service and support—one reason Dell recalled so many laptop batteries, Rollins said, was to show its dedication to customers—are also expected to help shore up Dells position, company executives believe.
Next Page: The formula for growth.
Growth Formula
“The question has always been why Dell never did AMD,” said Richard Shim, an analyst with IDC in San Mateo, Calif. “It works to make [Dell] more price competitive and it s worked for others in a very key segment, the consumer segment, which ahs been driving a lot of the growth in the industry.”
So, Shim said, the question now becomes can Dell make it work with AMD?
Rollins thinks so. The Dell CEO said offering AMD chips gives its customers—both consumer and corporate—greater choice, while also giving Dell an edge on processor costs. The AMD product line has incurred some start-up costs, Dell executives admitted. But they expect them to quickly turn into profits.
Dell is likely to take the wraps off of its new AMD-powered Dimension desktop ahead of its Sept. 12 analyst meeting in New York. Meanwhile, it plans both two-processor and four-processor PowerEdge servers for the second half of the year as well.
Previously, the company had only disclosed a plan to deliver a multiprocessor, AMD-based servers by the end of 2006.
Whether or not Dells new AMD products catch on, Shim said, Dell still has to worry more about itself and its recent missteps than anything—even HP.
HP on August 16 reported strong second fiscal quarter results that included its PC arm reporting an 8 percent year over year increase in revenue and a 14 percent gain in unit shipments.
Right now, “HP is hitting on all cylinders,” Shim said. “But Dell can still do that. Its just that it hasnt for many reasons. It hasnt had the right products, it has not priced them correctly and it hasnt helped customers the way it did the past. This is what has lead to its growth slowing down.”
Growth is the “overarching thing there. Dells always been so phenomenal because of its high growth rate. It used to outpace the market. After the bubble burst, it was the only one that was growing. Now its growth has slowed down and the other guys that were faltering are still going strong and Dell isnt—at least not as fast,” Shim said.
Meanwhile, Dell will continue offering Intels latest processors in its computers. It has adopted Intels Core 2 Duo, for example, in desktops and will soon add the chip to its notebooks, Dell executives said.
“We love them both,” Rollins told reporters. “We think there is great, exciting technology form both” AMD and Intel. Editors note: This story has been updated with information about the SEC inquiry and with additional information about future Dell AMD-based products.