Dell Declares Price War, May Make Acquisition

By Jeff Franks

AUSTIN, Texas (Reuters) - Dell Computer Corp. (Nasdaq:DELL - news) President James Vanderslice declared a full-scale price war on Wednesday in a bid to increase market share and said the company might even make an acquisition with its huge cash reserves.

Vanderslice, in a press briefing at company offices here, said Dell, already the world's No. 1 computer maker, intended to take advantage of tumbling component prices in a slow economy to get a bigger bite of the computer market and perhaps knock out some of the competition.

``This is going to be Bosnia,'' he said. ``Our game is to go play hardball. Why not?''

He said component prices, pressured by falling demand, were dropping by about 1 percent a week, putting Dell and its direct sales model in the catbird seat.

The company is able to pass falling prices along to customers within three days, versus as much as 60 days for competitors, because it keeps virtually no inventory, Vanderslice said.

``This is not a price war, it's a cost war,'' he said. ``Who knows what the endgame is, but when you're grabbing up market share like this, it's the chance of a lifetime.''

In two days of presentations to reporters, Dell executives said the company has set its sights on grabbing the top spot in the server and storage markets.

Compaq Computer Corp. (NYSE:CPQ - news) has traditionally been the world's top server maker, but Dell claimed earlier this month it had taken the lead in the U.S. market on a units-shipped basis.

``We're pricing to capture footprint (market). Once we capture the footprints, we have pretty good evidence that we keep the account,'' Vanderslice said.

Vanderslice said Dell has nearly $8 billion in cash, which he would like to use for a ``strategic acquisition.''

Typically, Dell executives have expressed reluctance to buy other companies on grounds that mergers usually fail.

But Vanderslice said Dell would keep an eye out for possible purchases that could even include companies not tied to a direct sales model.

The Dell culture was so strong, he said: ``You've got expand it beyond the direct model.''

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