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Dell Cuts Prices, Giving HP More to Fret About

The direct computer seller made the move a day after its rival said tough competition had hurt its profit margins.

August 21, 2003|From Times Staff and Wire Reports

Dell Inc. on Wednesday turned up the heat on Hewlett-Packard Co.

One day after HP conceded it missed profit forecasts partly because it lowered prices too much in its competition with Dell in the cutthroat PC business, Dell slashed prices again.

The reductions -- of as much as 22% -- are on computers, printers and other products.

Dell, the No. 1 personal computer maker, is using its direct-to-customer sales method to undercut Palo Alto, Calif.-based HP and its other rivals ahead of the back-to-school season.

HP Chief Executive Carly Fiorina on Tuesday blamed the loss in its PC unit on "our own overly aggressive pricing actions," which hurt HP's gross margins.

"The third quarter is always tough, but we still should have done better," Fiorina said in a conference call with financial analysts.

On Wednesday, Dell said its price cuts were unrelated to HP's poor earnings report.

"One can't help but question the timing," said Needham & Co. analyst Charles Wolf of Dell's move. "A quick response on HP's part is virtually impossible, so it could really screw up HP's plans for the back-to-school season."

Dell sells most of its computers directly to customers, enabling it to pass on lower costs of computer parts to its customers.

In the last few years, it has used this method to take market share from competitors such as HP and Gateway Inc., which is also losing money on its PCs.

The timing of the release was "serendipitous," a Dell spokeswoman said.

"When we see an opportunity to lower prices, we do it," spokeswoman Wendy Giever said.

Dell, based in Round Rock, Texas, said the cuts include lowering desktop computer prices by 6%, while certain computers for large businesses are 22% lower in price and others have been cut by as much as 10%. Notebook PCs are being cut 3%, printers 11% and flat-panel displays 20%.

Shares of Dell dropped 54 cents to $32.28 on the Nasdaq Stock Market, while Hewlett-Packard shares dropped $2.31, or 10%, to $19.80 on the New York Stock Exchange.

Reuters and Bloomberg News were used in compiling this report.

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