Dell to feel the squeeze from higher component costs?

In the OEM PC industry, the rise and fall of components is like the swell of the tide. That is to say, fluctuating component costs are a force of nature–all boats rise with the tide and all manufacturers can do is hope to ride it out. But what happens when a manufacturer tries to ride the wave, funneling gains from low component prices directly into the profits? We may be about to find out.

As the financially-minded may already know, Dell’s most recent quarter benefited heavily from price cuts in PC components–price cuts which were not passed on to Dell’s consumers. Now this isn’t completely unique: Apple recently pulled a similar move which also led to a noticeable bump in profits. However, ZDnet thinks that Apple is a special case–i.e. the company can get away with this sort of maneuver “because it’s a premium brand.”  

But what of Dell, the enterprise-friendly seller of budget boxes? With component prices on the rise, the company may soon be faced with a difficult choice. “Dell has two choices when component prices increase: Pass on increases to preserve profit margins or eat a bit of the costs,” ZDnet writes. “A lot will depend on HP, which is the stronger company. If HP decides to squeeze Dell on pricing it can.”

For more on the coming crisis:
– see this ZDnet article

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