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Dell struggles with falling prices, high warranty costs

updated 10:00 am EST, Tue December 8, 2009

Dell 10Q reveals cost of low-price PCs

Dell in its 10Q forms has revealed increasing problems with its home PC group. The company's average selling price for a home system has dropped 23 percent year-over-year as customers have continued to look for cheaper systems. At the same time, the company has paid a price for the cheaper systems as warranty obligations for repairs and replacements have increased by $42 million over the same period.

In comparison, prices for commercial systems have only dropped by about 3 percent over the same period.

The shift to the low end reflects both the popularity of Dell netbooks like the Mini 10 but also an economy that among Windows PC makers has favored very low-priced systems that are more prone to break. A typical Windows notebook sold for just $519 in the summer where it sold for $658 just a year earlier; at the same time, studies have pointed to budget PCs being more likely to fail than more expensive models, especially in the netbook category.

Apple, which generated over four times more profit than Dell's $337 million in similar quarters, has seen its average prices drop only slightly to $1,410 and has been reported as having a significantly lower failure rate.



By Electronista Staff
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  1. pairof9s

    Mac Enthusiast

    Joined: Jan 2008

    +8

    Ah, yes...

    ...thus we see the real value of market share!

    /

  1. boris_cleto

    Fresh-Faced Recruit

    Joined: Sep 2002

    +13

    beleaguered

    If I were Apple I would buy Dell just to shut it down and give the money back to the investors :)

  1. iphonerulez

    Dedicated MacNNer

    Joined: Nov 2008

    +2

    It makes sense that if you keep

    building cheaper and cheaper systems, the quality is likely to suffer. Since you're already getting razor thin margins, users that have systems that are breaking down are going to need to use their warranties and those warranties are going to cost the company even more money. I think there has to be a limit to how cheaply you can build computers without consequence for the manufacturer. Dell is now in a vicious cycle that can only be broken by raising prices. Actually, all the Windows PC makers in the U.S. should all agree to start raising their prices to get the Windows PC industry back on track.

  1. phillymjs

    Fresh-Faced Recruit

    Joined: Jun 2000

    +12

    Like I keep saying...

    When you engage in a "race to the bottom" price war, sooner or later you get to the bottom. And then you find out that it sucks, like Dell is doing right now.

  1. Salty

    Professional Poster

    Joined: Jul 2005

    +6

    Or

    Brilliant idea though... offer a 90 day warranty on the cheap c***, and a full year on the higher end. Or just stop being a commodity brand.

  1. appleuzr

    Fresh-Faced Recruit

    Joined: Aug 2006

    +11

    comment title

    build a quality product and back it by decent support. end of story.

  1. bjojade

    Fresh-Faced Recruit

    Joined: Jun 2007

    +3

    90 day warranty??

    Really? You think that would fly? You're going to end up with a LOT of pissed off customers that way!!

  1. JulesLt

    Fresh-Faced Recruit

    Joined: Jul 2005

    0

    Bounce at the bottom . . .

    Our work purchasing policy has bounced back up from the bottom end, after the failure rate was noted.

    The thing that is counter-intuitive is that you actually need some failures in order to measure the value of your QA - if you have no failures you have no idea if you've got it right, or you're spending 2x, 4x or 10x as much on QA as you need to.

    This is the flipside - get it wrong and it costs you too much money in repairs.

  1. ruel24

    Fresh-Faced Recruit

    Joined: Sep 2009

    +3

    PC market isn't what it used to be

    This is the problem with the PC market - it's a game of who's cheaper. When there is nothing to make your product stand out, it's a race to the bottom. Dell used to be a brand to turn to, in the Windows market, if you wanted quality. Then, they started pushing cheapened up, Dell branded, components on you, and then they began to spread their product out across way too many product lines. It's a race to the bottom.

    Fortunately, Apple continues to take the high road. Give them something unique and desired, and give them quality and innovation. I can't say Apple is perfect, as graphics problems have plagued certain models, new iMacs have cracked screens...but overall, they give you quality but you do pay for it. I'm okay with that idea.

  1. bleee

    Mac Enthusiast

    Joined: Mar 2002

    +4

    You get what you pay for

    I'm not sure why people are so surprised, you get what your pay for in this world PC's are going the way of GM and Ford building extremely cheap and extremely unreliable computers.

    It's disgusting how much e-waste will be going to land fills, had they just settled with a happy medium of "affordable" and "quality" we'd all be happy. I still have my Late 2001 600Mhz iBook to this day the only thing broken is the battery and my 12inch Aluminum Power Book (a bit dented) but still kicking.

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