Whose Lunch Will Dell Eat Next?

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We all know Dell as the giant in direct sales of configurable PCs.  Two years ago Dell started reselling printers, handhelds and peripherals made by companies such as Sony, HP, Lexmark and Epson.  We have now become used to looking for Dell’s coupons and 10% off sales on these items.  But reselling devices is low profit, and that doesn’t fit Dells growth plans.  So watch out  Palm, HP, Sony, and Toshiba here comes the Dell $299 Pocket PC.

Two years ago Dell considered entering the PDA arena and even published a white paper on its website that detailed what OS they might develop a PDA for, but for one reason or another the plan to sell a Dell PDA went by the wayside.  On July 18 Dell stated
their growth goal for 2006 would be to double sales to $60 billion (Yes, $60,000,000,000 up from 15 years ago when Michael Dell built his first PC in a dorm room for around $1000).  The key to this growth goal will not be based on extending PC sales, but rather selling peripherals such as Printers and Handhelds.  After HP found out Dell’s plans on July 18 HP sent a not so nice letter to Dell and cut off all shipments of products to Dell immediately.

And for good reason, Dell has its scope aimed squarely at HP and its business.  The iPaq now sells for around $600, and the profit margins on handhelds are quite good for companies, above 20% at the least.  Not nearly as good as the 60% profit margin on printers, but 20% is actually very good for a consumer electronics product, it is well over twice the profit margin on PCs.  Dell sees this as an opportunity to start a price war and steal market value.  So this Christmas, Dell is hoping to put a Pocket PC on the market that matches any other Pocket PC out there, but they will sell it for $299 as opposed to $599.  This is certain to drive down gross profit margins on PDAs, but this is great for consumers like us because other manufacturers will have to drop their prices as well.

Right now Dell is in talks with Taiwanese manufacturers, many have balked at being able to create a cheaper device, but there are some willing to partner with Dell so the likelihood is high we’ll see a Dell PDA by Christmas.  Currently Palm is first in the PDA market with 32% share and HP is second with 19%, but you’d better believe Dell wants to at least get to that number two spot by 2006, we’ll see what happens!

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