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Tickers in this Article: DELL, WMT, CC, AMD, INTC, BBY, RSH
Dell Computer (Nasdaq: DELL) recently shocked the world by announcing plans to sell its wares at, of all places, Wal-Mart (NYSE: WMT).

There had been speculation swirling in the market over the last several weeks that Dell was going to try to capture market share from Hewlett-Packard (NYSE: HPQ), Apple (Nasdaq: AAPL) and the other major computer makers by opening up retail stores of its own or by scooping up the shares of a small electronics retailer with an enviable geographic footprint such as Radio Shack (NYSE: RSH).

Those options may still be on the table, but starting in June, Dell's computers will line the shelves of some 3,000 Wal-Mart and Sam's Club locations.

Now, I don't want to sound like I am against this relationship. After all, Wal-Mart sports a ton of stores, excellent foot traffic, and it sells an array of competing computer-related products and gadgetry, so this outlet could theoretically allow Dell to capture some decent market share. But, at what price?

Wal-Mart is able to offer low prices, in part, because it generally pays low prices to its vendors. In other words, it is usually able to secure its products on the cheap. You'd have a tough time selling a product in a Wal-Mart store unless you were willing cut your prices almost to the bone. Dell is probably hoping that the volume of sales it will garner from the Wal-Mart deal will make up for any discounts it has to offer on price.

Dell has indicated that the Wal-Mart/Sam's Club venture is a "first step", and the company plans to secure additional retailers in its top markets - particularly those in Europe. Overall, this could prove to be a good strategy.

The Fallout
I haven't heard much chatter on how this deal could impact other players in the industry - but it certainly could.

For example, Circuit City (NYSE: CC) and Best Buy (NYSE: BBY) sell plenty of computers. There is a risk that a big push by Wal-Mart could put a damper on other retailer's sales, or force those players to cut prices. In turn, this could hurt margins, and thus their quarterly earnings.


Then there is the potential impact on chipmakers such as AMD (NYSE: AMD) and Intel (Nasdaq: INTC). If Dell has to sell its computers to Wal-Mart at a low price, it might have to pinch its suppliers as well. And the semiconductor industry is already in tough enough shape right now due to an ongoing price war between the industry's 800-lb gorillas. Probably the last thing it needs is a kick in the pants like this.

The Bottom Line
Dell's strategy is either going to be a terrific move or a huge flop, and it's just too early to tell which way it will go. The thing to watch for now is Dell establishing additional retail relationships - these could boost the stock significantly.

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