Dell Stands By Business Model As It Seeks to Upgrade Image

AUSTIN, Texas _ The biggest computer seller in the world isn’t budging. Much.

After it missed Wall Street expectations in three out of the last five earnings reports, some analysts questioned whether Dell Inc.’s business model was still working. Dell executives say they’re not abandoning the basic concepts that brought the company to the top.

They are, however, making some small tweaks as they respond to computer buyers’ changing tastes.

Dell is known for efficiency, for keeping its internal costs low, giving customers low prices while keeping a tidy profit. Now it’s trying to adopt a glitzier image, developing a reputation for style and quality.

The company faces the difficult task of adjusting its formula without ruining it. But Dell leaders believe they have to take some risks to stay on top.

“You become No. 1, you’re the biggest in the marketplace, people like your products and you’re like, `Good, I don’t need to change anything,’” said Neeraj Srivastava, marketing manager for Dell’s business laptops, in an interview at the company’s Austin campus near its headquarters in Round Rock, Texas.

“That’s complacency,” he continued. “We’ve seen car manufacturers fall into that trap.”

The new laptop computers Dell plans to announce today demonstrate the ways the company will avoid that fate, Srivastava said.

The computers still fit Dell’s mold. The company will sell them directly to customers through catalogs, the Internet and the phone, without using middlemen. This allows Dell to better track shifts in demand and changes in the market, adjusting its prices and configurations for maximum profits. That’s how it became No. 1.

But these laptops look different. In the Latitude line for business customers, the plastic shells of older models have been replaced with a magnesium alloy, making them more durable. (To demonstrate their toughness, Srivastava opened a new Latitude D620, placed it on its end and stood on top of it to show that it would not bend.)

The colors and design look more stylish, with bolder lines and contrast. And Dell is moving to widescreen monitors across the Latitude line. That’s an uncharacteristically bold move for the PC giant, analysts said.

“A few years back you couldn’t point to a single Dell laptop and suggest that it was something anybody wanted to carry,” said Rob Enderle, president of market research firm the Enderle Group. “We’ve seen these products become much more attractive over time.”

That’s part of the plan.

Dell is dominant in the United States. It held about 33 percent of the market in the fourth quarter, according to figures released by market research firm International Data Corp. in January. It had a wide lead over the second-biggest U.S. PC seller, Hewlett-Packard Co.

But Dell’s market share was about the same the year before. And its growth in U.S. shipments was just slightly ahead of that of the overall market, according to IDC’s figures.

In the rest of the world, Dell’s sales were clearly outpacing those of competitors, especially in high-growth areas such as Asia and Europe.

So while Dell is sticking to its well-tuned strategy in hot markets, it has to find ways to grow in some of the most saturated areas, such as the U.S. PC market.

“The emerging markets are really untapped, so there it’s really about building the Dell brand and doing what we do,” said Tom West, who oversees Dell’s U.S. consumer and small business sales.

“Here, it’s more about developing depth. That means a bigger share of the customer wallet.”

Dell wants to reach customers it hasn’t been able to attract in the past. And some of Dell’s rivals, such as Lenovo Group Ltd. or Apple Computer Inc., have had faithful customers for years with products that are long-lasting or stylish.

Dell craves those loyalists, who are often willing to spend more for their computers than the average buyer.

For that reason, “we’ve seen over the course of the last year or so lots of subtle things from Dell that shows that they’re kind of a higher-quality PC company,” said Sam Bhavnani, a researcher at Current Analysis.

In September, for instance, Dell revamped its XPS line of high-end PCs to aim it at a wider audience willing to pay top dollar.

It offers services to help customers connect and run other devices with their PCs. Last month, it announced plans to buy Alienware Corp., a much smaller PC maker that specializes in machines for demanding video-game enthusiasts.

The territory is somewhat unfamiliar for Dell, and it has contributed to the company’s missteps in the last year.

In the quarter that ended in July, it missed Wall Street expectations because it miscalculated demand and sold too many low-end PCs. In the following quarter, it shifted too far in the other direction, focusing too much on high-end PCs and missing expectations again.

Dell has sometimes found it difficult to adapt to changes in the preferences of increasingly sophisticated PC buyers, West said.

“It’s very easy to configure your PC. It’s harder to configure your digital photography,” to provide more complicated services for customers, he said. But he noted that the rest of the PC industry is struggling to address the same problems.

Ultimately, Dell can fit its emphasis on quality and style into its traditional template of speed and efficiency, Bhavnani said.

Because of its power and influence, the company can pressure suppliers to improve their computer components, and it can get good deals on the latest must-have technology.

For example, Dell’s purchasing power may have helped it convert the Latitude line to pricier widescreen monitors before many competitors made similar moves, Bhavnani said. In that case, Dell used its traditional methods to become a trendsetter, he said.

Dell is starting to figure out today’s PC market, Enderle said.

“They’re realizing that people buy computers,” he said. “Making the product physically attractive is becoming something that is falling within Dell’s purview.”

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