Dell Moving Away From Direct Sales

Dell Inc. is moving forward with plans to begin selling PCs through solution providers, channel partners and retail partners, instead of sticking with the pure direct sales model championed by company founder Michael Dell.

The decision will change the dynamics in an industry where Dell has until now made an end-run around the outlets and resellers that sell PCs from competitors such as Hewlett-Packard Co., Lenovo Group Ltd. and Acer Inc.

Now Dell has plans to augment its existing direct sales by seeking growth through those solution partners as well as retail outlets in the U.S. and abroad, according to a blog posting written Wednesday by Lionel Menchaca, Dell's digital media manager.

Dell will not be starting from scratch; the company already sells about US$4 billion of computers through its solution partners each year in North America alone, Menchaca said.

Although Dell watched its share of global PC sales fall behind HP's in the second half of 2006, the company still shipped more than 39 million PCs in 2006, representing 16.3 percent of the global market, according to iSuppli Corp.

Dell's move has investors wondering about the effect of the change on other vendors. HP chief executive Mark Hurd declined to comment on Wednesday when stock analysts asked him about the impact of Dell's new strategy.

Other analysts are already applauding Dell, although they say the change is overdue. While the direct sales model was once the force that catapulted the company from its founding in 1984 to the top of the industry, it is now a disadvantage as Dell targets consumer and international markets, said Shaw Wu, an analyst with American Technology Research.

"Dell needs to experiment on a grander scale with stores to touch consumers and SMB customers directly, whether it be its own stores, much as Apple has done successfully, and/or Hewlett-Packard through Best Buy, Circuit City and CompUSA," Wu said in a report to investors.

Michael Dell first hinted at the move in a memo to his employees in April, just three months after he resumed the title of chief executive in an attempt to save the company from sinking sales, lost market share, an accounting investigation by stock market regulators and multiple lawsuits.

"The direct model was a revolution. It's not a religion," Dell said in the memo.

This week the company fleshed out the plan, saying it would create a more definitive program for solution partners, perhaps by creating an authorized logo they could use to leverage greater sales, according to Dell spokesman Dwayne Cox.

Dell also acknowledged that certain customers preferred not to buy direct, so the company could reach new buyers by selling PCs in more diverse settings, including an aggressive reach into retail stores in the U.S. and abroad in the next several quarters, Cox said.

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