Dell raises ante in price war

ROUND ROCK, TEXAS -- Dell Computer Corp. President and Chief Operating Officer James Vanderslice waved the red flag yesterday, declaring an all-out price war in a push to gain more market share and potentially drive competitors out of business. With nearly $8 billion in cash on hand, Vanderslice also said the company is poised to make an acquisition.

Vanderslice said Dell, which narrowly beat out Compaq Computer Corp. as the top PC maker in the world in the first quarter, was better positioned than its competitors to take advantage of falling component prices in today's sluggish economy because of its direct sales model.

"This is not a price war, but a cost war. Component prices are falling 1% a week," he said at an analyst and press briefing at the company's headquarters. "And we can take the cost reduction and pass that on to our customers. Dell's direct model is wreaking havoc in the industry. We gained more market share in the first quarter than we did in the last six quarters. This is a tough game. We have tremendous momentum. Our competitors are falling by the wayside."

Vanderslice said Dell is able to pass its savings along to customers because it keeps only three days of inventory on hand, while its competitors keep 60 days.

"If you want to take someone's pulse, take a look at how they manage their assets," he said. "Our expenses are 60% less than our competitors." Earlier this month, Dell and rivals Compaq and Hewlett-Packard Co. all announced price cuts on corporate desktop PCs (see story).

Compaq Computer Corp. had a strong response to Dell's declaration of war. Keith Lefebvre, head of the workstation and thin client division of Compaq and who until last month ran the company's commercial PC division, said, We're not going to let someone come in and buy our customers out from under us."

Customers should benefit from this aggressive competition, Lefebvre said. "It's a good time to be a customers...We want people to buy as many PCs as they can."

Compaq, he added, "will not allow Dell to win our customers away."

Hewlett-Packard Corp., another major corporate PC supplier, did not return calls for comment by deadline.

During two days of presentations to analysts and reporters, Dell executives, including Vanderslice, said the company is also looking to be No. 1 in the server and storage markets. Earlier this month, Dell captured the top spot in the U.S. server market.

Vanderslice also said Dell "was always looking at acquisitions," to strengthen its market position.

In another development, Dell on Tuesday became the first vendor to detail plans for a server based on Intel Corp.'s long-awaited 64-bit Itanium processor, a PowerEdge system that should be available to customers by midyear.

The PowerEdge 7150 will support up to four Itanium processors running at 733 MHz or 800 MHz and sport up to 64GB of memory, according to Gene Austin, vice president of worldwide marketing in Dell's enterprise systems group. As expected, the server will be available with either Microsoft Corp.'s Windows 2000 operating system or Red Hat Inc.'s distribution of Linux.

Ashlee Vance of the IDG News Service contributed to this report.

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