But he says that Dell's price-cutting may have caused buyers to move up some purchases, drawing from sales that otherwise would have occurred in the second quarter. And Dell rivals, particularly Compaq, remain willing to slash prices. So Dell will have to continue cutting prices in order to gain sales in the coming quarter. But lower prices mean lower profits. Although Dell has been willing to accept somewhat lower profits, there is a limit to what investors will allow.
Gross margin is a measure of the basic profitability and costs of a company's core business.
Across the PC industry, gross margins have been reduced steadily by price-cutting. Kumar estimates that every percentage point decline in the gross margin translates to a loss of 1 to 2 cents of net earnings per share. Staff writers Tony Plohetski and Leah Quin contributed to this report.