No company has walked the Wintel way more faithfully than Dell. The Round Rock, Texas-based PC company’s loyalty to Intel and Microsoft has long been rewarded with double-digit sales gains and fat profits. Since Dell’s earnings for its most recent quarter fell 18 percent from a year earlier, however, it seems Dell’s faith has wavered. Dell last month started shipping PCs with defaults set to the Google search engine, and with Google Desktop and the Google browser toolbar software installed (see Google’s Getting a Dell).

The deal is a blow to Microsoft, which has been fighting with Google over default search engine bragging rights across the industry. “It’s a big coup for Google,” says Roger Kay, president of research firm Endpoint Technologies Associates.

It’s also a change that is long overdue. Dell is struggling to keep up with a resurgent Hewlett-Packard, whose share of the PC market is soaring, thanks to its acquisition of rival Compaq and a tough-minded new CEO. Meanwhile, the Intel chips Dell relies on remain a step behind rival AMD, and Microsoft has repeatedly delayed the release of Microsoft Vista, the next-generation operating system PC makers are counting on to spur fresh sales. It’s now due in January 2007.

Slowing Giant

The result: Dell’s operating income for the quarter ending in April was $949 million—6.7 percent of revenue. Sales increased to $14.2 billion, representing growth of 6 percent from the year-ago quarter. But net income fell to $762 million from $934 million. “Business fundamentals deteriorated dramatically during [the most recent quarter], and given unfavorable industry trends and reinvigorated competitors, Dell’s aggressive pricing might result at best in only unprofitable growth, and at worst in margin corrosion without the desired growth,” First Albany Capital analyst Hugh Mai wrote last week, downgrading his rating on Dell to “neutral” from “buy.”

No surprise, then, that Dell is tinkering with the formula that made it great. Last month, it agreed to use server chips from AMD, a big shift for Dell (see “Semi-Tough,” Vol. 3, No. 21, p. 18). Dell even made an overture to Microsoft nemesis Apple, publicly offering to put the Cupertino, California-based outfit’s OS X operating system on the machines it sells. Agreeing to put Google’s software on its machines moves it another small step away from the Intel-Microsoft duopoly that Dell has long relied on.

Look for more such moves as Dell continues to push beyond the inexpensive offerings for which it is best known. Last week Dell announced a pricey $3,500 portable entertainment PC with a 20-inch screen and a $2,310 gaming desktop, and a super-slim $1,300 magnesium-framed laptop. All promise wider margins than the typical Dell models, which start at $299 for desktops and $499 for notebooks.

But until Dell’s pricier offerings start selling in volume, Dell’s alliance with Google will provide a small but welcome source of revenue after its disappointing quarter, analysts say. Moors & Cabot Capital Markets analyst Cindy Shaw believes the Google deal would add at most $0.10, and more likely only a few cents, to Dell’s annual earnings per share this year. Not much, but it is more than can be said for Microsoft Vista.

But the deal serves Microsoft’s ends, as well. Google has sought to have the U.S. Department of Justice and the European Commission intervene on its behalf to keep Microsoft from making its search engine the default for the upcoming Windows Vista operating system. But earlier this month Microsoft convinced the Justice Department that the search engine default could be changed easily.

Now You See It…

The Romulans in the TV series Star Trek had it. So did Harry Potter. But in real life, no device can render a spaceship or a person invisible. Not yet, anyway. Two researchers from DukeUniversity in Durham, North Carolina, are working on it, however. The researchers, along with a third scientist from the ImperialCollege, London, recently published a paper in the journal Science explaining how to build such a device. It involves using an artificial material they called “metamaterial”—a composite that can redirect light around the object, much like water moving around a rock. The meta-material can warp a range of electromagnetic waves, apparently, not just visible light.