Loss-making Dell aims high

Loss-making Dell aims high

DELL is investing more resources in New Zealand despite posting a loss in its last financial year and re-affirming its commitment to a low operating cost direct selling model.

David Miller, Dell vice-president and managing director for Australia and New Zealand, last week announced the appointment of Derek Leitch as New Zealand manager, saying more appointments will follow, but declining to reveal intended numbers.

At the same time he extolled the virtues of the company’s low operating cost model, saying it ensures best pricing for customers.

Miller also asserted that Dell does not cross-subsidise market segments or products to win market share.

However, that appears to be at odds with Dell’s most recent set of financial results for New Zealand, which were made public on the Companies Office website on August 30.

The figures show Dell New Zealand posted an after-tax loss of $148,316 for the financial year ended January 31, 2004.

Both its revenue of just under $7.59 million and operating expenses of $7.46-million increased over the 2003 financial year, when the company reported a surplus after tax of $402,357 on revenue of $6.85 million.

Dell New Zealand operates according to a global model designed at keeping operating expenses at a minimum. The company does not own or permanently lease any property in the country, with employees working from fully equipped home offices, while serviced boardroom facilities are hired when needed.

Meanwhile, industry sources are speculating that Dell has been buying market share to become more visible in the New Zealand market.

“It is no secret that Dell uses its large marketing funds to subsidise pricing to win business,” says Peter Shirley, of local assembler Arche Technologies, and chairman of the Computer Manufacturers Association of New Zealand (CMANZ).

“Its policy seems to be to go into a site and win the business and then make their margins down the line.”

Another source, who did not want to be named, also claims Dell has been buying business in the last year to increase its mind share in the country.

Dell’s Miller says the company has grown unit sales by 184% over the last year up to June 30 and that the New Zealand business is growing with increased momentum.

He says formalising the role of Leitch, who has been the de facto head of the New Zealand operation for the last eight years, will provide Dell New Zealand with autonomous decision-making and flexibility to help it achieve its goal of toppling Hewlett-Packard as leader of the overall PC sales market.

Second quarter PC sales figures for 2004 compiled by research firm IDC show that HP leads the market with a share of 33.1%, while Dell holds the second spot with 17.9%.

But HP does not see Dell as a greater threat now than before, says marketing manager Jeff Healy, who adds that the company has an experienced and professional reseller channel to draw on to ensure it remains the market leader.

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