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Compaq defends server market share

The PC maker offers a rosier interpretation of Dataquest statistics that showed it losing first place in the U.S. market for Intel servers.

Compaq Computer is offering a rosier interpretation of Dataquest statistics that showed it losing first place in the U.S. market for Intel servers, but the argument doesn't completely disguise the company's difficulties fending off Dell Computer.

Compaq doesn't dispute the Dataquest figures for the first quarter of 2001, which gave Dell a resounding first place with 38 percent of the market to Compaq's 32 percent. But Compaq still believes it's tops when it comes to how many customers are buying servers rather than how many Dell and Compaq are selling, said Mary McDowell, general manager of Compaq's server division.

It may seem like there's no distinction between the two measurements, but it's very important because Compaq relies largely on other companies to sell the products to customers. In contrast, Dell generally sells directly to those customers. Dataquest measures how many servers the companies sell, not how many customers buy.

As Compaq struggles with financial hardships and 7,000 layoffs, the server market becomes more critical. Not only do the more powerful networked computers offer plumper profit margins than PCs, but also they often carry along services and sales of accompanying PCs.

Compaq is trying to reduce by $500 million the amount of inventory it ships to its sales and distribution channels, McDowell said. Consequently, the amount of products shipped out of Compaq has dropped.

"The fact that we're bleeding down the channel tends to distort the (market) share figures," McDowell said.

Compaq believes that when the market is measured by how many servers customers bought, the company is still No. 1.

But in some measure, Compaq is splitting hairs. The company acknowledges the gains Dell has made in its market and is taking steps to protect its position. Among those measures are increasing Compaq's sales efficiency by reducing inventory and giving its sales force more authority to discount products.

"This is the clear franchise business of the company," McDowell said. "If we can improve the efficiency of the supply chain, that really wipes out Dell's only strongpoint in the U.S. market. We think this is the right time to focus on kicking out the legs from under them."

In the United States, Compaq has given more power to business partners selling its equipment as well as to its own sales force, she said. "We gave our sales people the ability to be aggressive depending on who they're bidding against. They have a lot more autonomy than they have in past quarters to make sure Compaq doesn't lose the deal."

Cutting prices reduces the profit margins, but Compaq is compensating by emphasizing sales on product bundled with services and higher-end 4-processor and 8-processor servers, McDowell said.

Meanwhile, Compaq still is the market share leader worldwide, according to the Dataquest figures, but Dell is gaining there, too.

Compaq had 29 percent of the Intel server market for the first quarter of 2001, selling 234,700 of the 810,000 total systems sold, according to Dataquest. Dell, in second place, shipped 174,700 systems, for 22 percent.

Overall market growth was 28.4 percent compared with the first quarter of 2000. Dell's growth was nearly double that at 47 percent, and Compaq's was less than half at 13 percent.

IBM, at third place with 113,000 systems sold and 14 percent of the market, grew 18 percent. Hewlett-Packard with 90,400 systems and 11.2 percent share, was in fourth place.

In Western Europe, though, Compaq fared somewhat better. Compaq sold 94,400 of the 249,200 total Intel servers, a 45 percent growth rate compared with the 36 percent market growth. Dell, with 16 percent of the market, still grew faster at 48 percent.