October 3, 2005 10:00 AM PDT

For Dell, will luxury PCs boost profits?

Dell, the low-cost king, may be trying to fatten up its margins by going after the top end of the PC market.

The Round Rock, Texas-based company on Wednesday unveiled its XPS brand, a luxury line of computers that will compete head-on with high-end PC makers like Alienware and even Apple Computer.

Some analysts interpret the move as an indication that Dell, which rocketed to the PC industry's top spot by building an efficient manufacturing operation that enables it to sell computers for less than its competitors, wants to feast on the fatter margins that come with selling snazzier gear. Prices for the XPS systems start at $1,099, while prices for the long-running Dimension PC line can go as low as $400.

News.context

What's new:
With its new XPS line of PCs, Dell is taking a shot at the high end.

Bottom line:
Considering that PC components are already at rock-bottom prices, the Texas company is hoping to pump up its margins with the luxury brand. But can it lure style-consious consumers away from Apple Computer?

More stories on this topic

But why bother? After all, Dell's margins seem to be holding up. In its most recent fiscal quarter, which ended July 29, Dell said its operating margin was 8.7 percent of total sales, up a tenth of a percentage point from a year ago. And sales were up 15 percent to $13.4 billion.

Still, in an industry whose customers expect prices to keep on dropping, even the most efficient of companies, at some point, will find that it's becoming difficult to maintain a healthy profit.

"There is probably no other business on earth in which buyers continually expect more for less," said Roger Kay, president of the tech analysis firm Endpoint Technologies Associates.

Moore's Law, which argues that the number of transistors in a silicon chip doubles about every two years, has held up for many years and still has some life left in it, Kay said. Moore's Law also means that the cost of producing that better performance inversely drops--and it has over the years. But costs of other basic components, such as cases, fans, frames, power supplies, and a multitude of diodes and resistors, are already at rock bottom and aren't going much lower, Kay said.

Dell XPS line

"It's pretty clear that (Dell) needs to go after those high-margin markets if it wants to maintain its profits," said Nicholas Carr, author of several tech industry books, including "Does IT Matter? Information Technology and the Corrosion of Competitive Advantage."

The solution: Go upscale with some of your products, where margins are always higher. It's a strategy similar to what big car manufacturers have been doing in recent years: Big trucks don't cost too much more to make than sedans, but they cost a lot more on the sales lot. Customers are willing to pay a premium for that size and power. That's money the carmakers can pocket.

It's the same thing in the PC market. More power, more features usually mean more profits for the manufacturer on each item sold. And Carr argues that, like car buyers, some consumers think of their PCs as statement items and are willing to

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40 comments

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Add your comment
More analysis, please
"How else can you explain an Apple laptop with a titanium
casing? Or the growing popularity of so-called rugged laptops?"

You fail to answer this question in the article. Nowhere is the
fact that people don't simply buy Macs for the style of the case;
many of them are returning Apple users, and many more are
frustrated by a limitation any Dell machine has inherently: it
must run Windows.

This is the third article I've seen on the XPS line in a week
comparing the XPS line to other "style" manufacturers without
any of the obvious analysis of price/performance, OS choice or
construction quality and support.

Style is very subjective. Dell's project manager for the XPS line
called the new computers "Dell's Lexus" (I'm paraphrasing here).
I'd expect News.com to do more in-depth reporting about that
assertion and whether or not it's just another badly-flawed car/
computer analogy. A Lexus is far more than a re-badged Toyota
with a better dealership experience, but that's all that Dell seems
to be offering here.
Posted by Hep Cat (440 comments )
Reply Link Flag
I agree...
I totally agree with you (see my response below). XPS is NOT a new series, just updated looks, so I'm interested in finding out the sales figures for it. Logically, I wouldn't think many people would buy XPS-class computers from Dell (I offer my reasoning in my "Apple to Oranges" response), but I might be wrong.

Certainly, there's nothing wrong with having an option of a higher-marging product for a consumer to choose from, but perhaps Dell would be wiser to spend some money on improving customer support FOR ALL PRODUCT LINES.

Dell's customer satisfaction has been dropping steadily and now is on par with industry average. Whether for right or wrong reasons, very many people don't care to get support from people overseas, so Dell may be forced to bring back some of its business to the US for home side (I think it's business support had been mostly moved back to the US already).
Posted by Rusdude (170 comments )
Link Flag
More analysis, please
"How else can you explain an Apple laptop with a titanium
casing? Or the growing popularity of so-called rugged laptops?"

You fail to answer this question in the article. Nowhere is the
fact that people don't simply buy Macs for the style of the case;
many of them are returning Apple users, and many more are
frustrated by a limitation any Dell machine has inherently: it
must run Windows.

This is the third article I've seen on the XPS line in a week
comparing the XPS line to other "style" manufacturers without
any of the obvious analysis of price/performance, OS choice or
construction quality and support.

Style is very subjective. Dell's project manager for the XPS line
called the new computers "Dell's Lexus" (I'm paraphrasing here).
I'd expect News.com to do more in-depth reporting about that
assertion and whether or not it's just another badly-flawed car/
computer analogy. A Lexus is far more than a re-badged Toyota
with a better dealership experience, but that's all that Dell seems
to be offering here.
Posted by Hep Cat (440 comments )
Reply Link Flag
I agree...
I totally agree with you (see my response below). XPS is NOT a new series, just updated looks, so I'm interested in finding out the sales figures for it. Logically, I wouldn't think many people would buy XPS-class computers from Dell (I offer my reasoning in my "Apple to Oranges" response), but I might be wrong.

Certainly, there's nothing wrong with having an option of a higher-marging product for a consumer to choose from, but perhaps Dell would be wiser to spend some money on improving customer support FOR ALL PRODUCT LINES.

Dell's customer satisfaction has been dropping steadily and now is on par with industry average. Whether for right or wrong reasons, very many people don't care to get support from people overseas, so Dell may be forced to bring back some of its business to the US for home side (I think it's business support had been mostly moved back to the US already).
Posted by Rusdude (170 comments )
Link Flag
Apples to Oranges (Dells)
I don't think it's valid to say that people who want style, go for Apple computers. It's not a valid comparison due to different OS'es that computers run and hence, a very different set of programs available(it will become more valid once Apple moves to Intel chips and, hopefully, will be able to run Wintel programs). For example, XPS series has been aimed at gamers (XPS has been around for awhile now), and hardly any gamer uses Apple for obvious reasons.

Better companies to compare too are Falcon Northwest, Voodoo PC, and Alienware. All three are some of the oldest and better-known builders of gaming/hardcore systems and they have more style than any Dell. Alienware would seem to be the biggest competitor since they are more mainstream and have somewhat lower prices than Falcon or Voodoo.

From a business standpoint, I don't really see the audience that would buy these products. Most home customers want something cheap and don't care for advanced features (at least, they shouldn't if all they do is Internet, MS Office, etc.) and style. On the other hand, hardcore people would rather build a computer or buy if from the companies I mentioned earlier (or some of the smaller vendors).

Now, I know that XPS line has been around for awhile (couple of years, I believe) and it carried slightly better styling than plain fare. For Dell to continue to sell and expans XPS offerings, it must mean the sales of XPS have been solid, so I may stand corrected on my customer-base comments.
Posted by Rusdude (170 comments )
Reply Link Flag
More Mac gamers than you think!
I know it seems odd, but from what I read in recent articles
regarding Mac game developers/publishers suggest that there are
more Mac gamers out there than what is assumed. Of course I
personally wouldn't waste time and money on PC or Mac gaming
versus the game console; which is GOOD enough these days :-)
Posted by JuggerNaut (860 comments )
Link Flag
Apples to Oranges (Dells)
I don't think it's valid to say that people who want style, go for Apple computers. It's not a valid comparison due to different OS'es that computers run and hence, a very different set of programs available(it will become more valid once Apple moves to Intel chips and, hopefully, will be able to run Wintel programs). For example, XPS series has been aimed at gamers (XPS has been around for awhile now), and hardly any gamer uses Apple for obvious reasons.

Better companies to compare too are Falcon Northwest, Voodoo PC, and Alienware. All three are some of the oldest and better-known builders of gaming/hardcore systems and they have more style than any Dell. Alienware would seem to be the biggest competitor since they are more mainstream and have somewhat lower prices than Falcon or Voodoo.

From a business standpoint, I don't really see the audience that would buy these products. Most home customers want something cheap and don't care for advanced features (at least, they shouldn't if all they do is Internet, MS Office, etc.) and style. On the other hand, hardcore people would rather build a computer or buy if from the companies I mentioned earlier (or some of the smaller vendors).

Now, I know that XPS line has been around for awhile (couple of years, I believe) and it carried slightly better styling than plain fare. For Dell to continue to sell and expans XPS offerings, it must mean the sales of XPS have been solid, so I may stand corrected on my customer-base comments.
Posted by Rusdude (170 comments )
Reply Link Flag
More Mac gamers than you think!
I know it seems odd, but from what I read in recent articles
regarding Mac game developers/publishers suggest that there are
more Mac gamers out there than what is assumed. Of course I
personally wouldn't waste time and money on PC or Mac gaming
versus the game console; which is GOOD enough these days :-)
Posted by JuggerNaut (860 comments )
Link Flag
Wow, XPS, thats a fancy looking Virus sponge you've got there!
The internals of a Dell PC and their foreign support options are still
the same thing, no matter how sweet the cases look, its still
Windows inside, and the security nightmares that go with it.

Somehow this seems to go along the lines of those nice chrome
trashcans with the flip lids, attactive, but the content remains the
same.
Posted by (39 comments )
Reply Link Flag
Unrelated....
For the love of all things holy, can we, please, stop bashing Windows platform, the proverbial "dead horse"? Most people who read this are perfectly aware of all the downsides to running Wintel.

As for the only relevant nuggett in your comment -- Dell promises super-pooper-priority support from "top" specialists. Whatever that means, I don't know.
Posted by Rusdude (170 comments )
Link Flag
Wow, XPS, thats a fancy looking Virus sponge you've got there!
The internals of a Dell PC and their foreign support options are still
the same thing, no matter how sweet the cases look, its still
Windows inside, and the security nightmares that go with it.

Somehow this seems to go along the lines of those nice chrome
trashcans with the flip lids, attactive, but the content remains the
same.
Posted by (39 comments )
Reply Link Flag
Unrelated....
For the love of all things holy, can we, please, stop bashing Windows platform, the proverbial "dead horse"? Most people who read this are perfectly aware of all the downsides to running Wintel.

As for the only relevant nuggett in your comment -- Dell promises super-pooper-priority support from "top" specialists. Whatever that means, I don't know.
Posted by Rusdude (170 comments )
Link Flag
All missing an important point
The XPS line is not just about profit margin, I am pretty sure it also has as much to do with brand recognition.

Brand Name might not be everything, but don't think it doesn't count for something.

Don't think if it like Lexus, because Lexus does not retain the Toyota name. It is more like Dodge's Viper, Ford's GT, or Intel's Extreme.

If some other company makes its name synonymous with high end and Dell just becomes "the cheap brand" it could find itself going down as fast as it came up.

I think it is a strategic move for brand recognition as much as it is a method of improving profit margins.

I will also say I believe this is a smart move on Dells part.

I once suggested a while back that Gateway could use the same method to re-establish the Gateway brand PC's. With this move from Dell it looks like that niche might have been filled now.

Now I am going to predict that gateway will continue to sink as they continue to do the same thing (nothing).
Posted by Dachi (797 comments )
Reply Link Flag
Brand recognition...
"The XPS line is not just about profit margin, I am pretty sure it
also has as much to do with brand recognition."

I'm sure that this is the case, but if Dell is hoping to morph from
a "no-nonsense a-la-carte" PC vendor to a vendor which offers
two or more distinct trim levels, then they need to actually
spend money on the upper trim level and differentiate it from
the lower tier offerings. It woul dhelp if they hired FrogDesign or
another design group to actually...you know, design the
computer.

Dell has a lot to learn - Apple has been designing and packaging
computers in high style for almost eight years now, and learning
from the mistakes along the way. There are a lot of things to
watch for when you start adding "bling" to a computer or
accessory, not the least of which is that the materials can be
fragile or have special handling considerations.

Right now it's the same old Dell case with silver accents. It
comes nowhere close to the monolithic power and understated
presence of a G5 or the self-assured quirkiness of an Alienware
case. The support side of the value equation isn't inspiring,
given Dell's sinking customer satisfaction ratings.

The pictures here on News.com are difficult to draw conclusions
from, but I think it's clear the XPS won't be winning any beauty
contests when up against the the more rarefied brands popular
with style-concious buyers.

Every first attempt deserves a learned follow-up. Time will tell if
the folks in Round Rock learn anything from the success or
failure of the XPS' design language. I applaud their efforts
though; we're seeing the maturation of the PC industry in this
differentiation among brands.

Personally, I think it's not nearly enough, and front of the case
reminds me of the "artsy" anti-graffiti refacing applied to
stainless steel bathroom doors with a grinder. The XPS font is
even a little trendy, and might look "old" in a couple of years.
Aside from those things, there really doesn't appear to be much
cosmetic difference from a regular Dell at all.
Posted by Hep Cat (440 comments )
Link Flag
All missing an important point
The XPS line is not just about profit margin, I am pretty sure it also has as much to do with brand recognition.

Brand Name might not be everything, but don't think it doesn't count for something.

Don't think if it like Lexus, because Lexus does not retain the Toyota name. It is more like Dodge's Viper, Ford's GT, or Intel's Extreme.

If some other company makes its name synonymous with high end and Dell just becomes "the cheap brand" it could find itself going down as fast as it came up.

I think it is a strategic move for brand recognition as much as it is a method of improving profit margins.

I will also say I believe this is a smart move on Dells part.

I once suggested a while back that Gateway could use the same method to re-establish the Gateway brand PC's. With this move from Dell it looks like that niche might have been filled now.

Now I am going to predict that gateway will continue to sink as they continue to do the same thing (nothing).
Posted by Dachi (797 comments )
Reply Link Flag
Brand recognition...
"The XPS line is not just about profit margin, I am pretty sure it
also has as much to do with brand recognition."

I'm sure that this is the case, but if Dell is hoping to morph from
a "no-nonsense a-la-carte" PC vendor to a vendor which offers
two or more distinct trim levels, then they need to actually
spend money on the upper trim level and differentiate it from
the lower tier offerings. It woul dhelp if they hired FrogDesign or
another design group to actually...you know, design the
computer.

Dell has a lot to learn - Apple has been designing and packaging
computers in high style for almost eight years now, and learning
from the mistakes along the way. There are a lot of things to
watch for when you start adding "bling" to a computer or
accessory, not the least of which is that the materials can be
fragile or have special handling considerations.

Right now it's the same old Dell case with silver accents. It
comes nowhere close to the monolithic power and understated
presence of a G5 or the self-assured quirkiness of an Alienware
case. The support side of the value equation isn't inspiring,
given Dell's sinking customer satisfaction ratings.

The pictures here on News.com are difficult to draw conclusions
from, but I think it's clear the XPS won't be winning any beauty
contests when up against the the more rarefied brands popular
with style-concious buyers.

Every first attempt deserves a learned follow-up. Time will tell if
the folks in Round Rock learn anything from the success or
failure of the XPS' design language. I applaud their efforts
though; we're seeing the maturation of the PC industry in this
differentiation among brands.

Personally, I think it's not nearly enough, and front of the case
reminds me of the "artsy" anti-graffiti refacing applied to
stainless steel bathroom doors with a grinder. The XPS font is
even a little trendy, and might look "old" in a couple of years.
Aside from those things, there really doesn't appear to be much
cosmetic difference from a regular Dell at all.
Posted by Hep Cat (440 comments )
Link Flag
Again....How about some english speaking reps?
If I have to talk to someone who is, to me, as coherent as white noise then the best hardware in the world may as well be filled with pig manure for all I care. Im never going with Dell again for one reason. I have nothing personal against people in India or Asia but if I cant understand a freaking shipping address because their accent is so thick or they come off as hostile because of the way a persons accent is then screw it. I dont want to deal with any part of your business. It basically tells me that you dont give a crap post purchase about your customer and if that is the case I dont give a crap about you.
Posted by Jonathan (832 comments )
Reply Link Flag
Again....How about some english speaking reps?
If I have to talk to someone who is, to me, as coherent as white noise then the best hardware in the world may as well be filled with pig manure for all I care. Im never going with Dell again for one reason. I have nothing personal against people in India or Asia but if I cant understand a freaking shipping address because their accent is so thick or they come off as hostile because of the way a persons accent is then screw it. I dont want to deal with any part of your business. It basically tells me that you dont give a crap post purchase about your customer and if that is the case I dont give a crap about you.
Posted by Jonathan (832 comments )
Reply Link Flag
Dell:Lexus = Oxymoron
Dude... you're getting a super-duper-dell!
The Yugo of computers is trying to build & sell a Lexus "luxury
Dell"?

HAHAHAHAHAHAHAHAHAHA!
Good one.
=8-)
" IDIOT! " ...Napoleon Dynamite
Posted by Llib Setag (951 comments )
Reply Link Flag
And what do you think is a Lexus of computers an Apple, Please
Apple's look like crap especially the cheap G5 iMac plastic box. Sure Apple makes some nicer looking machines but the hardware still sucks and the you pay out the but for the style. Dell have some very nice styles that won't cost a fortune and will work much better than a Mac. HP and Gateway are on the par with Dell now if you are talking Alienware or Falcon sure they do a hell of a paint job but the cost is about double for the same hardware. If you going to make a comment give an example of what you think and leave the ND quotes out that shows your lack of intellect.
Posted by (10 comments )
Link Flag
Dell:Lexus = Oxymoron
Dude... you're getting a super-duper-dell!
The Yugo of computers is trying to build & sell a Lexus "luxury
Dell"?

HAHAHAHAHAHAHAHAHAHA!
Good one.
=8-)
" IDIOT! " ...Napoleon Dynamite
Posted by Llib Setag (951 comments )
Reply Link Flag
And what do you think is a Lexus of computers an Apple, Please
Apple's look like crap especially the cheap G5 iMac plastic box. Sure Apple makes some nicer looking machines but the hardware still sucks and the you pay out the but for the style. Dell have some very nice styles that won't cost a fortune and will work much better than a Mac. HP and Gateway are on the par with Dell now if you are talking Alienware or Falcon sure they do a hell of a paint job but the cost is about double for the same hardware. If you going to make a comment give an example of what you think and leave the ND quotes out that shows your lack of intellect.
Posted by (10 comments )
Link Flag
It's not style....
... people want. It's either 'cheap' or 'powerful'. The concept of
'style' on a box stuffed under the desk is mostly irrelevant. If you
want cheap, goto Dell or Walmart. If you want powerful, goto the
specialized builders, or build one yourself. Dell is NOT the answer
here.
Posted by Earl Benser (4310 comments )
Reply Link Flag
It's not style....
... people want. It's either 'cheap' or 'powerful'. The concept of
'style' on a box stuffed under the desk is mostly irrelevant. If you
want cheap, goto Dell or Walmart. If you want powerful, goto the
specialized builders, or build one yourself. Dell is NOT the answer
here.
Posted by Earl Benser (4310 comments )
Reply Link Flag
just higher priced rip-off
Dell continues to do anything to rip people off. Now they are going to do it with higher priced models. Still will be stuck with lousy customer service. STAY AWAY FROM DELL.
Posted by (13 comments )
Reply Link Flag
just higher priced rip-off
Dell continues to do anything to rip people off. Now they are going to do it with higher priced models. Still will be stuck with lousy customer service. STAY AWAY FROM DELL.
Posted by (13 comments )
Reply Link Flag
Performance PC with Intel?
Dell and performance do not go together, and trying to charge a premium for a intel based system when there are plenty of AMD solutions that have superior performance makes absolutely no sense.
Posted by Rolndubbs (194 comments )
Reply Link Flag
Yeah
It's like Walmart trying to sell its own brand of fine china.
Posted by mgreere (332 comments )
Link Flag
Moving in the right direction
HP is moving in the right direction. They offer Linux,Netscape and AMD. Now HP buyers have a choice and are not limited to the offerings of Dell and Sony. Dell would do good to follow that business model instead of trying to sell a repackaged so so Intel machine as a high end gaming system.
Posted by mstlyevil (39 comments )
Link Flag
but...
dell are experts at milking the average "idiot" market. as most people here have already demonstrated, experienced PC users won't touch dell with a very long stick. however, there are many people who would pay stupid amounts of money for a dell, since they don't know of their poor rep.
Posted by Scott W (419 comments )
Link Flag
Performance PC with Intel?
Dell and performance do not go together, and trying to charge a premium for a intel based system when there are plenty of AMD solutions that have superior performance makes absolutely no sense.
Posted by Rolndubbs (194 comments )
Reply Link Flag
Yeah
It's like Walmart trying to sell its own brand of fine china.
Posted by mgreere (332 comments )
Link Flag
Moving in the right direction
HP is moving in the right direction. They offer Linux,Netscape and AMD. Now HP buyers have a choice and are not limited to the offerings of Dell and Sony. Dell would do good to follow that business model instead of trying to sell a repackaged so so Intel machine as a high end gaming system.
Posted by mstlyevil (39 comments )
Link Flag
but...
dell are experts at milking the average "idiot" market. as most people here have already demonstrated, experienced PC users won't touch dell with a very long stick. however, there are many people who would pay stupid amounts of money for a dell, since they don't know of their poor rep.
Posted by Scott W (419 comments )
Link Flag
Out of touch with reality...
If you think PowerPC's and Mac's are so underpowered
check out the top500 supercomputing site <a class="jive-link-external" href="http://" target="_newWindow">http://</a>
www.top500.org/lists/plists.php?Y=2005&#38;M=06
Let's see 2200 Macs make #14 in the ranking and where's Dell?
There they are 2500 Opterons come in at #20 with 2/3 the
computing power of the 2200 Macs. And at about double the cost.
Posted by Arthur Young (19 comments )
Reply Link Flag
Out of touch with reality...
If you think PowerPC's and Mac's are so underpowered
check out the top500 supercomputing site <a class="jive-link-external" href="http://" target="_newWindow">http://</a>
www.top500.org/lists/plists.php?Y=2005&#38;M=06
Let's see 2200 Macs make #14 in the ranking and where's Dell?
There they are 2500 Opterons come in at #20 with 2/3 the
computing power of the 2200 Macs. And at about double the cost.
Posted by Arthur Young (19 comments )
Reply Link Flag
Someone do the dollar/teraflop analysis
Then also do add a year implemented to these numbers. The list only measures a snapshot in time. These systems take 3 to 4 years to spec and build. It will never be a fair comparison for most of the machines in the top 50. You people who are basing your arguments from this list are complete idiots.

It's about as idiotic a comparison as the Patriots of today vs the Steelers of the 70s or the Niners of the 80s.
Posted by jamie.p.walsh (288 comments )
Reply Link Flag
Someone do the dollar/teraflop analysis
Then also do add a year implemented to these numbers. The list only measures a snapshot in time. These systems take 3 to 4 years to spec and build. It will never be a fair comparison for most of the machines in the top 50. You people who are basing your arguments from this list are complete idiots.

It's about as idiotic a comparison as the Patriots of today vs the Steelers of the 70s or the Niners of the 80s.
Posted by jamie.p.walsh (288 comments )
Reply Link Flag
 

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