Dells Secret Channel

Customer pressure is driving more resellers to work with direct-market giant Dell, and Dell is making it easy for them. But don't tell Wall Street.

Dell and the channel are secretly growing fond of each other.

More and more VARs (value-added resellers), indifferent to shrinking hardware margins and prodded by price-sensitive customers, say they are buying Dell computers for their clients.

The Round Rock, Texas, PC maker embraced resellers by granting them visits from account representatives, sales support and even hardware discounts, VARs say.

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That Dell is seemingly growing fonder of the channel should be no surprise. Some industry insiders estimate that 20 percent or more of Dells revenue is derived from the channel. VARs offer the PC maker incremental business opportunities, which it might not have been able to win on its own. The company can also fill those orders using its traditional direct-sales mechanisms to provide hardware to the VARs at a time when it is wrestling with slowing unit shipment gains—and PC market growth itself is slowing, according to analysts and Intel—while it sees tougher competition from rivals Hewlett-Packard and Lenovo Group.

Still, "theyll never admit it or make [the channel] a formal program," said one analyst who asked not to be identified. "If you look at Dells stock versus HPs, part of the difference has to do with Dells reputation for owning the customer. Theres a sense they own the entire margin and have higher profits because they sell directly. It makes them appear more valuable to Wall Street."

But more and more VARs say they are selling Dells portfolio as their customers seek savings on hardware. They say that Dell is treating them to discounts equal to its competitors, usually between 1 and 4 percent. Those surveyed by eWEEK expect the trend to continue, particularly since Dell needs to find a way to keep growing. Dell announced May 8 that it will miss Wall Street forecasts with first-quarter revenue of $14.2 billion and earnings of 33 cents a share. Dell had projected revenue between $14.2 billion and $14.6 billion and earnings ranging from 36 cents a share to 38 cents.

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