Dell Is Seeking More Screen Time

Dude, you’re getting a ... Dell?

When Neil Ludvigson figured that it was time to trade up from his 6-year-old, 24-inch television, he set his sights on a big-screen, flat-panel, high-definition replacement.

“I always do my homework when I have a fairly major purchase,” the 69-year-old retired executive said.

So after checking the offerings at Fry’s Electronics and Best Buy stores near his home in Henderson, Nev., and scouring newspaper ads of Circuit City and CompUSA, he settled on a $3,000, 42-inch widescreen, high-definition plasma TV from Dell Inc.

The world’s largest personal computer maker is pushing its way into TVs, the latest expansion of Dell into products beyond PCs.

Last year, it branched into digital music players, prompting questions about whether the company that shook up the computer industry can do the same in consumer electronics, long dominated by familiar names such as Sony Corp., Philips and Matsushita Electric Industrial Co.’s Panasonic.

To Ludvigson, the answer is as clear as the image on his mammoth new TV.

“It’s a wonderful picture,” said Ludvigson, who bought the TV online sight unseen and set it up in his living room last month.

Dell is not the only PC maker to push TVs in recent months. Hewlett-Packard Co. and Gateway Inc. both offer TVs, part of a wider effort by PC makers to move more aggressively into digital home entertainment. But it’s Dell’s ability to decisively alter a market that has analysts and competitors watching its efforts closely.

Dell traditionally doesn’t enter new markets until it figures it can make big money quickly -- even when others can’t. Its streamlined production and distribution processes have kept its profit growing even as the margins on PCs from other manufacturers shrink.

In that way, the PC and consumer electronics industries are a lot alike. Margins on TVs and DVD players are thin, and the competition among manufacturers is intense. Round Rock, Texas-based Dell historically has thrived in that kind of environment.

In 1994, for instance, HP and Compaq Computer Corp., which HP acquired in 2002, claimed 14.8% of the world’s PC market; Dell only 2.8%, according to market researcher IDC. A decade later, HP’s share grew only slightly to 15.8%, but Dell’s surged to 17.9% -- making it the global leader.

“Dell has a model where it likes to wait until the market is commoditized, then come in and blow away the competition with lower costs and lower prices,” said Roger Kay, a computer analyst at technology market researcher IDC. “Now, can Dell produce those savings in a TV environment? Can it apply its distribution model to TVs? It’s proven itself in PCs, but as the company moves into new profit pools, it gets more uncertain.”

Televisions aren’t much of a technological leap for Dell. The manufacturer that supplies liquid crystal display panels for Dell PCs also makes the display panels for Dell televisions, so Dell can leverage the same technology and supplier.

“We have great economies of scale we can apply, and flat-panel TVs were an easy thing to go after,” said Phil Ventimiglia, Dell’s director of product marketing for displays.

Perhaps the biggest challenge for Dell will be persuading people to buy TVs without seeing them first, the way they do Dell computers.

Dell’s much-vaunted business model is the so-called direct method, where computers, printers and digital music players are sold over the Internet or telephone, reducing inventory and overhead costs and eliminating the middleman. Customers will have to overcome the desire to see the TVs in action -- a tough hurdle given that shoppers can see wide differences in on-screen images when walking down aisles of TV sets side by side.

“The problem is that television is a very different experience than PCs,” said Van Baker, a consumer technology analyst at market researcher Gartner Inc. “People don’t generally go to a store and compare the color of one PC screen against another.”

The only place shoppers can actually see a Dell TV is in one of the company’s 94 kiosks, located in malls in 13 states.

“That’s the Achilles’ heel as Dell tries to go into this market, especially as you go into larger sizes, where people are going to want to look at it before they pony up $2,000 to $3,000,” Baker said.

Dell executives counter that today’s shoppers are different. As with autos, prospective buyers bone up on the specifications of technology products on the Internet. They may go to a retail store to see items in person but ultimately shop online for the best price.

“Is the Dell brand something consumers are familiar with? Yes,” Baker said. “Does the Dell brand have positive brand equity for consumers? Yes. But does that brand equity apply to televisions? No. Just because you make a good PC doesn’t mean you make a good TV.”

Dell’s 42-inch plasma got high marks from Consumer Reports magazine, which in this month’s issue rates it ahead of more expensive offerings from Pioneer, Fujitsu and Hitachi.

The company declined to discuss how many TVs it has sold since they were introduced in 2003, but Dell lags behind the big consumer electronics makers.

In the fourth quarter of 2004, Panasonic, LG Electronics and Samsung were the top three players worldwide in plasma TVs, while Sharp, Philips and Sony were the big three in LCD TVs, according to DisplaySearch, a flat-panel market research firm in Austin, Texas.

Panasonic and Philips declined to discuss Dell’s entry into the TV market. Sharp and Sony could not be reached.

Palo Alto-based HP said it was focusing on the established players in the TV market and not worrying about Dell, even though Dell’s prices were lower. Prices change frequently, but the companies’ websites this week showed Dell’s 42-inch HDTV reduced to $2,999 from $3,499 and HP’s equivalent TV at $3,699.

“We’re not focused on a price game. We’re more concerned about establishing ourselves as credible player,” said Jan-Luc Blakborn, HP’s North American manager for digital entertainment.

“Is there a group out there interested in a cheaper product? Yes, but that could mean a similar product at a cheaper price or simply a cheaper product.”

Although Dell hopes that its reputation as a computer maker will help sell TVs, the reverse may prove to be true, as well.

Said Ludvigson, “I’m definitely going to buy a Dell computer now, after this experience.”