Dell Does Retail

Dell Inc.(NASDAQ: DELL) said yesterday it plans to start selling its personal computers through Wal-Mart Stores Inc.(NYSE: WMT) in North America next month, departing from the direct-to-consumer business model it was founded on.

The computer maker will enter into the retail market with computers under $700 starting June 10, it said. They will be available in Wal-Mart and Wal-Mart's Sam's Club stores across the United States, Canada, and Puerto Rico.

Since the company was founded in 1984, Dell had relied primarily on selling computers directly to consumers through its website, or mail order catalogs. The philosophy gave the company an advantage over competitors, enabling the firm to keep costs low, and margins high.

It also made the company the largest computer maker through the late '90's and through the turn of the century, but it has since lost its top position to rival Hewlett-Packard, which sells online and through retail. Dell hopes to compete more effectively against HP and other rivals by entering the retail market as well.

Company founder, Michael Dell, which retook the company's CEO position after his predecessor, Kevin Rollins, stepped down, told employees that the direct-sale model was not a religion, and said that a retail move was in works.

The new push will align Dell computers with other competitors currently in Wal-Mart's line up, including HP, Acer, and eMachine computers.

China's Lenovo Group Ltd. also said last month it planned a new consumer business unit as it faces stiff competition from HP, Dell and Acer.

The alliance may pressure some computer parts makers as Dell and Wal-Mart have been known to keep tight supply chains, squeezing profit margins from partners and suppliers.

American Technology Research analyst Shaw Wu believes that as a result of Wal-Mart's reputation for cost savings, margins for Dell will be too small to translate into meaningful profits.

"Our sense is that this is a pilot program and that we will not likely see a full-scale roll out for several quarters,' Wu said.

Shares of chipmakers makers fell following news. The Philadelphia Stock Exchange Semiconductor index slid 1.6 percent, while shares of Intel dropped 3.1 percent to $21.97.

Dell shares were up 18 cents, or 0.7 percent, to $25.89 in Friday pre-market trading on the Nasdaq Stock Exchange. Wal-Mart shares were up 20 cents, or 0.43 percent before the opening bell on the New York Stock Exchange.