Is Dell a buy for consumers or investors?

Dell, the world's largest maker of personal computers, earned its dominance by cultivating one of the most highly recognised and admired technology brands, while also being the industry's lowest-cost major manufacturer, The New York Times reports (3 September).

The newspaper saays that lately, though, the market has changed to suit the business models of competitors like Hewlett-Packard and Apple, and it shows in the performance of the three companies' stocks. Since the start of the year, Dell has fallen 17 percent and its rivals are up more than 30 percent.

According to the NYT report,the divergence is a result of several factors, including the booming sales of Apple's iPod devices, used to store music downloaded from the internet, and Hewlett's recovery, under new management, from a long period of laboring to find the right mix of activities after buying the PC maker Compaq in 2002.

Dell has been struggling as growth in computer buying has shifted from businesses to individuals, says the newspaper,putting the emphasis back on the "personal" in personal computing. The company's ability to beat the field on cost depends on marketing its products online to customers who know what they want, like corporate information technology departments. Individual computer shoppers require a bit more hand-holding and are willing to pay for it.

The NYT says that a strategy that depends on being cheapest - even when it can be carried out successfully - may be problematic now, when momentum in the PC business is slowing markedly. The technology consultancy Gartner forecasts a 12.7 percent increase this year in the number of personal computers shipped worldwide, but just 0.5 percent revenue growth.

The report says that that means prices are falling fast. Gartner projects 8.7 percent unit growth next year and a 0.4 percent revenue decline. When it comes to pricing, Dell is winning a race to the bottom - and the bottom is sinking.

The newspaper adds that Dell's ability to maintain margins through strong customer service seems to be slipping. In the University of Michigan's latest customer-satisfaction survey, Dell's lead over the rest of the industry - except Apple, which is adored by its small but fiercely loyal base of owners - has evaporated, the report says.