Dell trying to sidestep chip "cartel"

The PC maker opens up relationships with a wider variety of memory makers to get around high prices brought on by what CEO Michael Dell calls "cartel-like behavior."

SAN FRANCISCO--Dell Computer has opened up relationships with a wider variety of memory manufacturers to curb the effect of recent price hikes in memory chips, CEO Michael Dell said Tuesday.

The Round Rock, Texas-based PC maker has begun to obtain memory from Taiwan's Nanya to trim back escalating memory costs seemingly caused in part by cooperation between manufacturers, Dell told an audience at Merrill Lynch's Hardware Heaven conference here.

"You'll see us trying to encourage competition," by using a wider network of suppliers when necessary, Dell said. "I think we saw cartel-like behavior by a couple of DRAM suppliers. It appears to have been successful for a very short period of time."

Memory prices--which have more than tripled since last November but have recently begun to lurch downward again--have become a major problem for PC manufacturers, especially in the consumer market. Late last year, memory was selling for below cost, allowing PC makers to configure notebooks and desktops like high performance workstations.

Since then, PC makers have cut back on memory as prices increased. Some, like Apple Computer, have even raised prices on certain models.

While Dell technically didn't raise prices, it removed certain PC models from the market and replaced them with nearly identical units that cost more.

The price increase, for the most part, has been attributed to shrinking supplies and rising demand, but Dell further added that cooperative behavior between manufacturers played a part, at least in the last few weeks.

"These companies assumed that they could increase the price of DRAM and see an increase in supply," Dell said, "But the world doesn't work that way."

On other notes, Dell said that the economy appears to have stabilized, but there is little indication that corporate buying has returned.

"The economy feels like it is gradually improving," Dell said. "But customers are relatively cautious."

The company also continues to outpace nearly every competitor by a variety of measurements, Dell added. In 2001, Dell saw revenue per employee grow by 8 percent, while Compaq Computer and Sun Microsystems saw their figures decline, respectively, by 19 percent and 20 percent. Dell is now No. 1 in the Japanese corporate market. While the company made its name in desktop hardware, it will continue to expand into storage markets, servers, services and networking products. Small acquisitions in the services market may take place, "but don't hold your breath," Dell said.

In the near future, the company will focus on growing its share in France, Germany, Japan and China, Dell added.

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