Editor's Rating:

The Good: Nice design, lots of handy ports, great value

The Bad: Premium sleeves are a little gimmicky

As it turns out, Dell's (DELL) new Studio Hybrid PC has little in common with Toyota's (TM) thrifty Prius sedan. No high-end batteries. No carpool lane privileges. And I'm pretty sure it won't do much to improve fuel economy on your daily commute.

Instead, this "hybrid" PC is a small computer that puts a dual emphasis on energy efficiency and design. Dell is trying desperately to break from its past reputation as a maker of mind-numbingly beige PCs. The Studio Hybrid is one of its first products to have been styled by former Nike (NKE) design whiz Ed Boyd. (Read more about Boyd's efforts to make Dell cool (BusinessWeek, 11/6/08).)

Like all Dell computers, the Studio Hybrid is available in a dizzying array of configurations. The most basic model features a zippy Intel Pentium Dual Core processor, DVD burner, generous amounts of RAM and hard drive space, and it costs just $499. But while a wired Ethernet port is standard, that price doesn't include a wireless card, so plan on adding another $70 for that vital accessory.

As with similar small form factor computers such as Apple's (AAPL) Mac mini, ASUS's (AKCPF) Eee Box, and Hewlett-Packard's (HPQ) Slimline series, the Studio Hybrid comes without a monitor. Such computers are generally aimed at college dorms, living rooms, or as second family computers. To that end, the Studio Hybrid is small enough to sit on a crowded desk or be tucked underneath a television. Lying flat, it's about the size of a Thomas Pynchon hardback.

Dell vs. Apple?

Still, when I first heard about the Studio Hybrid, I was a bit skeptical. Dell? Design? Yeah, right. But if Dell wants to swim in Apple's pool, so be it. Still, as a pretty dedicated Mac user, I was more than a little shocked to find that the Studio Hybrid gives the Mac a run for its money—both in terms of hardware and industrial design.

For the money, the Dell represents a better value than the Mini with more plentiful and up-to-date features. (Admittedly, the Mini is in desperate need of a refresh.) An HDMI port that allows the computer to plug into a high-definition television is a standard option, as is a 7-in-1 media reader for camera memory cards. Normally, feature-packed PCs like this look more like 80s-era boom boxes, overloaded with blinking lights and buttons. But taking a cue from Apple's design manual, Dell integrated these extra ports so that they disappear seamlessly into the black case.

The model I tested also included a slinky, removable bamboo sleeve, which is a $100 built-to-order option. Bamboo is the green material du jour for consumer electronics and therefore teetering on the brink of cliché. But in this instance the sleeve transforms an otherwise humdrum box into a distinctive, attractive case. Other premium shells made of brown or black leather also cost $100. Six significantly less interesting colored plastic sleeves are available for free.

ENERGY EFFICIENT

Dell says the hybrid moniker comes from the computer's use of some laptop components to help reduce its energy usage (it meets Energy Star 4.0 standard). The company also claims the Studio Hybrid uses about 70% less power than a typical desktop, while the power supply that plugs into the back of the PC is 87% more efficient than is usual. These savings won't really affect your energy bills; they simply help mitigate green guilt and supply bragging rights. What is useful is that Dell designers really thought about the physical design of the power supply too, turning out a slim, flat black box rather than the usual unseemly brick.

One of my favorite things about the Studio Hybrid is likely its least sexy feature, the packaging. Bucking the Apple-led trend to enshrine consumer electronics in intricate packaging, Dell ships the Studio Hybrid in a modest, minimalist brown box that would surely warm Al Gore's heart. Overall, the packaging is 95% recyclable and contains about 75% less printed materials than typical tower desktops. This is a significant feat considering Dell ships most of its PCs through the mail and its packaging meets rigorous standards—computers must survive repeated drops, bumps, and knocks, after all.

It would have been easy for Dell to check off one or two of these boxes and still label Studio Hybrid a green PC. But it really seems the computer maker's designers tried to think through every element of the computer to meet its green mission. For that and an overall handsome design, the Studio Hybrid is a compelling PC for those who must run Windows.

Getty Images

Thanks to some timely tailoring, shares of Gap (GPS) jumped 27% on Nov. 21 even as the retailer's sales fell 8%.

The reason for the favorable reaction was another round of successful cost-cutting at Gap, which boosted profits despite the reluctance of consumers to spend at Gap, Banana Republic, and Old Navy stores.

Across the economy, corporate executives are looking to follow a similar strategy. As a potentially nasty recession sets in and revenues drop, firms are forced to cut their way toward higher profits.

Some analysts predict the Gap can continue boosting profits next year even as revenues decline. But eventually, many analysts say, Gap must find a way to draw more shoppers' dollars—not just cut costs through inventory controls, shrinking real estate holdings, or other measures.

A Short-Term Strategy

"While expense management has been impressive, we continue to wonder how sustainable earnings growth is longer-term with deteriorating sales and given a bleaker economic outlook in '09," wrote Banc of America (BAC) analyst Dana Cohen. (BofA handles banking services for Gap.)

Many other firms are taking similar cost-cutting steps, which often involve large rounds of layoffs. Dell (DELL) was also able to increase profits last quarter despite falling sales. The computer maker said it has cut 11,000 jobs in the past year.

"It's a necessary strategy, but it's a short-term strategy," says Dan Genter, chief executive and chief investment officer at RNC Genter. After a certain point, you're no longer cutting fat from your budget, he says—you're cutting bone.

For some firms, cost-cutting can be a healthy process that repositions them for future growth. Greg Estes, portfolio manager at Intrepid Capital Management, cites Starbucks (SBUX), which is shutting down less profitable coffee shops after "growing too fast" for several years. "If and when a positive environment returns, they'll be in a better position [with] better margins and a better portfolio of stores," says Estes, whose funds own Starbucks stock.

However, Estes says that, with some exceptions, it's generally very difficult to cut costs significantly for more than four quarters. After a while, though you may be widening profit margins, you're shrinking the entire firm.

When Are Cuts Permanent?

The financial sector is the most glaring example of these sorts of permanent cost cuts. Faced with a financial crisis and a tough economy, financial firms are slashing costs, shrinking expenses and perks, and laying off hundreds of thousands of workers—sometime alongside mergers with weaker rivals, sometimes not.

For example, Citigroup (C), the recipient of a federal government bailout Nov. 24, "may end up being a shadow of what it was," Genter says. Citi, like other financial firms, faces the problem of leverage, he says. Because it built its business on borrowed money, its contraction is more striking and more permanent when that leverage goes away.

In corporate board rooms, there is a raging debate on how much and how quickly to cut as the economy slows down. If you believe the recession will be over by mid-2009, you may want to hold onto valuable employees and keep facilities open so you can profit from the recovery.

Top Story

Deck the Stores with Bargains

Deep discounts on retail prices for apparel, jewelry, electronics, and even opera fail to excite consumers wary of losing their jobs

• Plus: Small Retailers Push
  for Online Sales
  
  

The bargains sweeping America are increasing, and they're not just Citigroup (C) shares under 4 and Dell (DELL) around 9. From apparel to autos, 10% or 20% price reductions no longer cut it—deals of half-off and more are flourishing in a growing number of industries as manufacturers and retailers plot an uncertain future in the midst of a near certain sales calamity.

In other words, anyone willing to spend can pick up some incredible bargains. "We are looking at a pretty deep recession. In this environment, retailers have zero pricing power," says Nariman Behravesh, chief economist for research firm IHS Global Insight. "They are going to be discounting like crazy. We are going to be looking at a pretty nasty Christmas season."

Shoppers will find some of the most aggressive discounts at apparel and department stores. Most chains took heavy blows in October, with department stores seeing an almost 13% sales decline at locations open for at least a year, a closely followed barometer known as same-store sales. J.C. Penney's (JCP) "Biggest Sale of Them All" has some items marked down 60%, and Gap's (GPS) three brands—Gap, Old Navy, and Banana Republic—each currently boast deep discounts, with some items slashed by as much as 70% at Gap stores.

Jewelry Bargains Galore

At a midtown Manhattan Banana Republic outlet Friday afternoon, sales staff outnumbered customers. Agnes Curmi, a 54-year-old mother of four, says the sales don't entice her as much as they once did. "You don't know what's going to come tomorrow," Curmi said. "You don't know if your husband is going to have a job or not."

Apparel is not the only area in which consumers can expect generous discounts. Luxury and discretionary goods such as jewelry, electronics, and sports cars have suffered significant sales declines in recent months, leaving retailers with no choice but to lower prices to help move merchandise. Chicago-based Whitehall Jewelers, which filed for bankruptcy in June, is closing its 375 stores and liquidating $500 million worth of gold, diamonds, and other items, with prices up to 75% off.

While jewelers typically have more control over pricing than other retailers because their inventory turns over less frequently, liquidation sales such as the one at Whitehall have a ripple effect that can make it harder for competitors to maintain profit margins of 50% or more. "It sets up a value expectation and the economy just reinforces that," says Nick White, president of White & Co., a Kentucky-based custom jeweler, who also serves as an industry consultant at Gerson Lehrman Group. With jewelry sales predicted to fall as much as 10% this holiday, from 2007 levels, price drops are inevitable well into next year. Yearend shopping is the most important selling period for jewelers.

Breaking the $400 Threshold

Vying for the same consumers are electronics retailers, which have significantly lowered prices on big-ticket items this season. Popular high-priced electronics such as Blu-ray DVD players and PCs can be had for roughly the same price that an Apple iPhone or camcorder would have cost a year ago. Typically purchased for their features, rather than their brand name, such items as HDTVs, laptops, and portable GPS navigators are being offered by lower-end manufacturers marketing more affordable models.

As it turns out, Dell's (DELL) new Studio Hybrid PC has little in common with Toyota's (TM) thrifty Prius sedan. No high-end batteries. No carpool lane privileges. And I'm pretty sure it won't do much to improve fuel economy on your daily commute.

Instead, this "hybrid" PC is a small computer that puts a dual emphasis on energy efficiency and design. Dell is trying desperately to break from its past reputation as a maker of mind-numbingly beige PCs. The Studio Hybrid is one of its first products to have been styled by former Nike (NKE) design whiz Ed Boyd. (Read more about Boyd's efforts to make Dell cool (BusinessWeek, 11/6/08).)

Like all Dell computers, the Studio Hybrid is available in a dizzying array of configurations. The most basic model features a zippy Intel Pentium Dual Core processor, DVD burner, generous amounts of RAM and hard drive space, and it costs just $499. But while a wired Ethernet port is standard, that price doesn't include a wireless card, so plan on adding another $70 for that vital accessory.

As with similar small form factor computers such as Apple's (AAPL) Mac mini, ASUS's (AKCPF) Eee Box, and Hewlett-Packard's (HPQ) Slimline series, the Studio Hybrid comes without a monitor. Such computers are generally aimed at college dorms, living rooms, or as second family computers. To that end, the Studio Hybrid is small enough to sit on a crowded desk or be tucked underneath a television. Lying flat, it's about the size of a Thomas Pynchon hardback.

Dell vs. Apple?

Still, when I first heard about the Studio Hybrid, I was a bit skeptical. Dell? Design? Yeah, right. But if Dell wants to swim in Apple's pool, so be it. Still, as a pretty dedicated Mac user, I was more than a little shocked to find that the Studio Hybrid gives the Mac a run for its money—both in terms of hardware and industrial design.

For the money, the Dell represents a better value than the Mini with more plentiful and up-to-date features. (Admittedly, the Mini is in desperate need of a refresh.) An HDMI port that allows the computer to plug into a high-definition television is a standard option, as is a 7-in-1 media reader for camera memory cards. Normally, feature-packed PCs like this look more like 80s-era boom boxes, overloaded with blinking lights and buttons. But taking a cue from Apple's design manual, Dell integrated these extra ports so that they disappear seamlessly into the black case.

The model I tested also included a slinky, removable bamboo sleeve, which is a $100 built-to-order option. Bamboo is the green material du jour for consumer electronics and therefore teetering on the brink of cliché. But in this instance the sleeve transforms an otherwise humdrum box into a distinctive, attractive case. Other premium shells made of brown or black leather also cost $100. Six significantly less interesting colored plastic sleeves are available for free.

ENERGY EFFICIENT

Dell says the hybrid moniker comes from the computer's use of some laptop components to help reduce its energy usage (it meets Energy Star 4.0 standard). The company also claims the Studio Hybrid uses about 70% less power than a typical desktop, while the power supply that plugs into the back of the PC is 87% more efficient than is usual. These savings won't really affect your energy bills; they simply help mitigate green guilt and supply bragging rights. What is useful is that Dell designers really thought about the physical design of the power supply too, turning out a slim, flat black box rather than the usual unseemly brick.

One of my favorite things about the Studio Hybrid is likely its least sexy feature, the packaging. Bucking the Apple-led trend to enshrine consumer electronics in intricate packaging, Dell ships the Studio Hybrid in a modest, minimalist brown box that would surely warm Al Gore's heart. Overall, the packaging is 95% recyclable and contains about 75% less printed materials than typical tower desktops. This is a significant feat considering Dell ships most of its PCs through the mail and its packaging meets rigorous standards—computers must survive repeated drops, bumps, and knocks, after all.

It would have been easy for Dell to check off one or two of these boxes and still label Studio Hybrid a green PC. But it really seems the computer maker's designers tried to think through every element of the computer to meet its green mission. For that and an overall handsome design, the Studio Hybrid is a compelling PC for those who must run Windows.

A new laptop designed by Nigerian artist Joseph Amédokpo

Hanging on a wall at Dell's (DELL) consumer design lab in Austin, Tex., are neat rows of what look like abstract paintings. There's a splashy watercolor in turquoise, black, and green, and a mosaic pattern of white and red dots and geometric shapes. Another is covered with hand-drawn sketches of olives in green, purple, and orange. These aren't works of art, though. They're dozens of prototypes for future laptops. Look closely and you see the Dell logo on each one.

The man behind this effort is Ed Boyd, one of Dell's most unusual hires in recent years. Boyd is an industrial designer who used to dream up new sunglasses and shoes for Nike (NKE). Now the 43-year-old is trying to make design an integral part of Dell, the personal computer maker long known for cranking out boring gray boxes. "I was skeptical it could be cool," says Boyd, who joined the company last year. "I took the job when I heard the design lab would function like a startup for consumer [products]."

LET THE BUYER DESIGN

Dell plans to roll out the first three laptops with these colorful designs on Nov. 11, in time for the holiday season. Customers will pay an extra $75 for the designs, on top of the basic $699 price tag for the company's budget-line portables. The designs are from Nigerian painter Joseph Amédokpo, South African graphic artist Siobhan Gunning, and Canadian designer Bruce Mau.

For Boyd, this is just a start, though. Next year, Dell will let buyers customize laptops in a dizzying number of ways, mixing scores of colors, patterns, and textures. The options will go far beyond the handful of choices available from most of its rivals. In essence, Boyd is taking the Nike approach of letting people design their own sneakers, and trying to apply it to the world of computers. "We're pushing the idea of [made-to-order computers] to the next level," says Boyd.

Dell could certainly use a change in fortune. The once-mighty PC maker has stumbled in recent years: Its stock is off by more than 60% since 2005. Even after founder Michael S. Dell returned as chief executive in 2007, the company continued to lose ground to Apple (AAPL) and the resurgent Hewlett-Packard (HPQ). "We had higher expectations for Dell's turnaround by now," says Clay Sumner, senior analyst at FBR Research (FBR). Dell's market capitalization is now $24 billion, compared with $93 billion for Apple and HP's $87 billion. The net cash on Apple's balance sheet is about the same as Dell's market cap.

Michael Dell contends that the company is making progress. He says Boyd's efforts have helped Dell get back on track, particularly with consumers. "We've got the most exciting new products ever from Dell coming in the second half of this year," Dell said during a speech in June. "That's fundamentally what brings new customers in."

RISKS AND REWARDS

Still, Dell's timing is awful. With the economy headed into recession and consumers cutting back, it will be difficult to charge any sort of premium for cool design. Analysts say that's especially true for companies such as Dell that don't have an established reputation for design. "Price will be more important for consumers because of the economic deterioration," says Mika Kitagawa, an analyst with the market research firm Gartner (IT).

Boyd is used to taking risks. Last year he hired an obscure graffiti artist named Mike Ming to create images for Dell products, a move that worried some of Dell's straitlaced staff.