War of the PC giants

Then, after dropping its earnings forecast for its first fiscal quarter of 2007, Dell reported revenues of $14.2 billion, up 6% year-on-year, but down 6% quarter-on-quarter.

Desktop revenue fell 3% to $5.1 billion, but notebook revenue of $3.7 billion was up 12% on 36% unit growth.

The company blames lack of planning and even proper acknowledgement of an intensely competitive PC industry, as well as too much focus on margin - at the expense of a focus on growth, especially in non-US markets (where it has 12% share only). By contrast, a strategic focus on notebooks has served it well, as has good growth in Europe.

By mid-May, Dell`s stock on Wall Street had fallen some 15%, while HP`s was up by about the same amount.

For the first time in 15 years, the direct-to-customers PC vendor was outpaced by the US market.

The Wall Street Journal highlights two fundamental trends that it says Dell will find tough to take advantage of - consumer buying is growing much faster than corporate growth, and world markets are outrunning a winded-looking US.

These, it says, are weak areas in Dell`s business model, and the market and company are rightly asking searching questions about its ability to turn the corner.

HP, by contrast, is doing rather nicely. Its Q2 results reveal that revenue from its Personal Systems Group (PSG) grew 10% year-on-year, to $7 billion, with unit shipments up 16%. Year-on-year, desktop revenue increased 1% and notebook revenue by 27%.

The comparison is all the more dramatic if one considers the companies` histories. Dell has grown from a $5 billion-a-year company ten years ago to ten times that much, wowing the market with its supply chain supremacy. HP, on the other hand, was under pressure not so long ago to close its PC division.

For years, its PSG swam in the red. But since 2004, due to restructuring and a focus on the unit`s profitability rather than market share, it has recovered.

GOING REGIONAL

In Europe, the Middle East and Africa the picture is slightly different, as it should be, given Dell`s stated intentions to grow its share in non-US markets even faster than it already is. However, according to IDC, HP is leading the pack with 17.7% market share in Q106, up from 16.1% a year before. Dell came second with 13.7% unit share, up from 13.3%.

HP`s unit sales growth was also considerably higher than Dell`s, boosting shipments to over 3 million units in Q1, up 26.2% over Q105. Dell managed 18.5% growth to 2.3 million.

As can be seen from the table, both vendors outgrew the market, which did a healthy 15%, driven by consumer and SME notebook demand (30% growth). Desktop shipments only expanded 7%.

HP posted robust growth in both desktops and notebooks (15% and 50%), while Dell continued its strength in notebooks.

SA TODAY

Hannes Fourie, BMI-TechKnowledge research analyst, says in South Africa HP came through the ranks nicely over the years. In 2001 it was seventh and Dell second, while in 2002 it was second and Dell third, and it took top spot in 2003, with Dell remaining in third place. These respective positions stayed the same until last year.

According to data from a different source, HP had 16.3% market share last year, while Dell achieved 8.8%. The year before, HP had 18.7% and Dell 10%, so not only had their relative positions not changed, but both had lost traction in the market.

BMI measured 31.6% quarter-on-quarter growth in the R2.8 billion SA PC market in Q106, with the surge in notebooks fuelling this. Year-on-year, growth was even better, at 34.8%.

While desktops recorded a robust 31.4% quarter-on-quarter growth, note-books flew at 40.5%. *

BOTTOM LINE

If the temptation has by now struck to consign Dell, once a darling of investors and buyers, to the heap of yesterday`s heroes, take caution.

Paul Booth, independent industry analyst, says one mustn`t read too much into the US, EMEA and SA figures. To begin with, the SA and EMEA figures don`t show the same relative vendor positioning as the US. But what Booth doesn`t say is that, both in SA and EMEA, HP has realised its leadership potential, which, according to commentators and personal suspicion, may just happen in the US too.

Booth doesn`t agree with this analysis, or with the Wall Street Journal`s summation that HP will increasingly dominate, thanks to aggressive consumer spending. HP`s strength in retail, it reports, is what will benefit its cause.

Instead, he says, the real trend to watch is Gartner`s prediction that businesses won`t buy computer hardware for employees beyond the end of the decade. Instead, the expectation will be on employees to provide their own.

The upshot is that consumers will want their choice of software and specification, says Booth. In such a scenario, retail buying is a problem, "because you can never find the spec you want". In an online selling scenario, `build-your-own` is a functioning reality, and this is an area that Dell purports to be strong in. In short, Dell is well positioned for future growth, says Booth. "The current competitive situation is a blip."

Guy Whitcroft, CEO of Tarsus Technologies, an HP distributor, appears to disagree, saying Dell`s direct model saddles it with huge fixed costs, whereas the channel pays its indirect `sales force` only once an item is sold.

Whitcroft reckons even Dell has seen the benefits of a channel model, as it is rumoured to be making up to 25% of its revenue via indirect means. "Personally, I think Dell should rethink its direct model altogether. [But] the main problem would be marketing. It could seriously damage their credibility, and the staff reduction costs would be enormous.