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Dell prices take a new turn

While the company isn't raising prices on specific PCs, it's changing configurations on some models and offering new, slightly costlier PCs to replace the cheaper versions.

Dell Computer roiled the PC market by relentlessly cutting prices in 2001, but the company is taking a different tack this year.

Dell, which successfully mounted a campaign to cut prices and gain market share against competitors last year, has slowed its price cuts in recent months because of component price increases, and some say it has even raised prices within certain segments of its product line.

While the Round Rock, Texas-based PC maker hasn't raised the price tag on specific PCs, a move already taken by both NEC and Apple Computer, the company has changed the configurations on existing PCs to avoid price increases. Additionally, the company came out with new, slightly higher priced models to replace cheaper, older ones in some instances.

The Dimension 2200 desktop introduced this week, for instance, replaces the Dimension 2100. The new PC comes with a 1.2GHz Celeron processor--faster than the 1.1GHz found in the base level 2100--better speakers, and a faster hard drive. However, it's also priced starting at $669, $40 more than the Dimension 2100, which started at $629 and is no longer available, according to research firm ARS. And although Dell's Web site allows consumers to customize PCs, the 1.1GHz chip isn't an option on the Dimension 2200.

Dell is "forcing you to spend more money, yes. But they're doing bumping (up) base components," said Toni Duboise, desktop analyst with ARS. "The prices are increasing incrementally, but along with that, they're increasing the strength of the components in their bundle."

The change largely comes as a result of component price increases. Memory, which many manufacturers sold for below cost last November, has since more than tripled in price, a rare phenomenon that has put pressure on manufacturers. Flat-panel monitors, an increasingly popular option, have also gone up.

For the most part, Dell has reconfigured PCs to avoid price hikes, according to Mike Maher, a company spokesman. Some PCs now come with less memory. If consumers want more, they can purchase it.

Gartner analysts Leslie Fiering and Brian Gammage say rising component costs will force most PC companies to raise their prices during the upcoming year.

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"We can emphasize different pieces (or components of a PC), and that's how we are managing around the different component price increases," Maher said. Dell executives are likely to address increasing component costs at the company's annual meeting with financial analysts in New York next week, he added.

Dell offers rebates and free upgrades on many PCs so that although a given PC may come with less memory, it could be of better value because of a free printer or cash rebate.

But analysts say that at times reconfiguration can be considered a price increase. Though Dell's price changes are difficult to track because the company often changes its PC hardware configurations and prices daily, ARS, which tracks PC prices and retail sales, says its research shows a general upward trend in the prices of Dell's most basic PC configurations.

Since December, for example, Dell has increased the base price and configuration of the Dimension 8200 desktop--which is sold via its small and midsize businesses Web site--several times, ARS said. The price on the machine crept up through updates that have moved its base processor from a 1.7GHz Pentium 4 in December to Intel's newest 2GHz Pentium 4 in February.

Last December, the machine was priced starting at $990 with a 1.7GHz Pentium 4, according to ARS. The base machine moved to $1,019 in January when Dell bumped the chip to a 1.8GHz version. During February, Dell replaced this with a 2GHz chip, boosting the base price to $1,389, according to ARS. It now hovers around $1,420.

Consumers have also reported that the Inspiron 4100 laptop can be more expensive now than a year ago, although rebates nullify any increases.

Dell moving its prices up is "pretty unique in the industry right now," Duboise said. Compaq Computer and Hewlett-Packard have basically held the line, while Gateway has gotten more aggressive since the beginning of the year. Although NEC and Apple raised prices, Dell sells a far larger volume of computers.

In some ways, Dell is hurt more by price increases than competitors and can more easily navigate sudden price escalations. The company has more potential exposure to component increases because it keeps less inventory than others. Because the company keeps less stock on hand, it is sometimes the first company that has to buy higher priced parts.

On the other hand, because it builds its PCs to order, it can change the configurations of them daily. HP, Apple and other PC makers manufacture in volume. Components can't be altered in the basic design easily or rapidly, so the companies are forced to absorb the cost or raise prices.

Dell's PC prices also vary on its own Web site. "Recommended configurations" by Dell can often cost less than similar configurations put together by consumers navigating the site on their own. Prices on the site for the same PC model can vary depending on whether consumers are shopping in the small business, consumer or large-business subsections of the Dell site.

Analysts say the prices between the three avenues can vary, because base configurations and features are different among them. A buyer is sometimes required to buy a desktop and monitor bundle from the small-business site, whereas the same machine can be had via the consumer site without a monitor.

As a result, customers can often still find the 8200 machine for a lower price than $1,420 if they know where to look. The machine, which was introduced last September starting at $1,199, can be ordered for less without a monitor.

ARS has also noted that several retailers recently raised their PC prices by about $50.

If anything, these slightly more expensive PC prices mean that "manufactures or retailers are hedging their bets that when the economy bounces back, it's going to mean consumers are willing to more pay for a PC," Duboise said, "though they may be jumping the gun."