The challenges of operating as a standalone PC maker have been well documented, especially in the annals of high-tech dealmaking. As this posting from fund manager Chad Brandt notes, Packard Bell no longer exists, IBM Corp. sold its PC business to Lenovo Group Ltd., Compaq was forced to merge with Hewlett-Packard Co., while Gateway Inc. bought out eMachines and continues to perform poorly.
Brandt, the founder and president of Peridot Capital Management, argues that Dell Inc.'s recent move to sell desktop PCs in 3,000 Wal-Mart stores effectively removes the biggest advantage it had over its struggling peers: a niche serving the high-end corporate, government and education PC markets that sought out Dell for its superior customer service.
Assuming that Dell will sell a low-end desktop computer in Wal-Mart, Brandt notes, "This decision really doesn't make a lot of sense to me. The company thrived by shying away from the exact area they are now going to go after."
"Let's not forget," Brandt adds, "that Dell at first refused to offer desktop models at $300 and $400 price points, instead focusing on higher-margin products."
Clearly, none of Dell's rivals have had great success pursuing the sub-$500 PC market. Brandt argues that focusing on ultracheap PCs will likely cause Dell's already deteriorating customer service to suffer even more. —Andrea Orr
See Chad Brandt's blog entry on SeekingAlpha
See Reuters story on Dell's Wal-Mart deal
See August 2006 story in The Deal
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