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Dell lops up to 20 percent off notebook prices

The PC maker slashes prices of corporate notebooks in reaction to both falling component costs and a grim sales environment.

Dell Computer has slashed prices of corporate notebooks by up to 20 percent in reaction to falling component costs, although analysts say the company is also reacting to a grim sales environment.

At least 10 Latitude models now sport lower prices. For instance, the Latitude CS Ultramobile notebook with a 500-MHz Pentium III processor and 128MB of memory dropped 20 percent to $1,599. The Latitude C600 and C800, meanwhile, both fell by $240 and now sell for $1,999 and $2,599, respectively. Dell also shaved prices off optional upgrades.

The price reductions, announced Wednesday, come as competitors such as Compaq Computer and Sony are seeing their respective inventory levels rise because of slowing notebook sales in both the consumer and the corporate markets.

"It's not surprising because of the increased inventory levels that the retail market is currently experiencing," said Technology Business Research analyst Brooks Gray. "The cuts indicate Dell has to be aggressive in this pricing environment, and the end result is beneficial to the end user."

Dell spokeswoman Anne Camden emphasized that the company is reacting more to component cost reductions than to competitor pricing.

"We're in a very strong position," she said. "The direct model allows us to immediately pass along price reductions to customers."

Component costs certainly greased the rails for price declines. Prices for memory, one of the more fluid yet significant cost factors inside desktops and notebooks, have been in a free fall since the end of the summer when PC demand began to drop. Contract price, or the price that major PC makers pay for memory in volume, for 64-megabit memory chips has dropped to the high $3 range from $7.50 in early October, according to Merrill Lynch analyst Joe Osha.

LCD (liquid-crystal display) panels have also been dropping in price. A shortage of LCD panels in 1998 led to substantial investments in new plant capacity, which came on line this year.

But savings on components--which Dell is better positioned to pass along to customers than many competitors--do not account for all the price cuts, say analysts. The timing and their nature indicate that the Round Rock, Texas-based company is responding to slowing notebook sales.

"A few models, I can see the cuts being component costs, but not the majority," said ARS analyst Matt Sargent. "Rather than drastically cut prices, Dell more typically beefs up configurations, such as adding more memory or faster processors, rather than just cutting prices."

Signs of slowing notebook sales had been coming for weeks, analysts say, but Wednesday's technology spending analysis by Merrill Lynch deepened an increasingly gloomy picture.

"The near-term outlook for IT (information technology) spending concerns us," Merrill Lynch analyst Thomas Kraemer wrote in a research report. "In one month, the net planned increase in overall IT spending for the next 12 months dropped...(from) 78 percent of our respondents to 56 percent."

OneChannel.net reported that online notebook sales as measured in dollars were off about 17 percent year-to-date for each of the weeks ending Nov. 25, Dec. 2 and Dec. 9. Unit sales dropped similarly for the first two weeks but rose 3 percent for the period ended Dec. 9 because of price cuts.

"If you look at the OneChannel.net numbers, things are slowing down quite dramatically," ARS' Sargent said. Cuts from other companies are likely, he added.

Still, Dell's overall position is stronger than that of rivals because of its build-to-order business model, which has helped the company price more aggressively than competitors, said Gartner analyst Ken Dulaney.

"Clearly the market jitters are affecting Dell's action as well, although that's not their official statement," he said. "They just want to maintain enough price delta between other vendors where they're going to get their share of the business."