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Dell set to surpass Compaq in worldwide PC shipments

A recent report says that Dell is likely to become the world's largest computer company sometime this quarter, overtaking Compaq.

Sometime this quarter, Dell Computer will likely surpass Compaq Computer as the world's largest computer company, according to a recent study.

Round Rock, Texas-based Dell is expected to ship approximately 3.9 million desktops and laptops this quarter, according to a study published this week by Morgan Stanley Dean Witter analyst Gillian Munson, compared with 3.4 million for cross-state rival Compaq.

In terms of market share, this will give Dell 14 percent market share worldwide, compared with 11 percent for Compaq.

The numbers do not include Intel-based servers, a historical Compaq strength. However, even if these are counted, Dell will likely eke out a lead, which will probably solidify over time.

"Dell is growing a lot faster, and Compaq is going for profitable growth," Munson said. "We are getting to the point where it might happen."

While the changing of the guard has been widely expected, a shift in the rankings will nonetheless be a historic moment for the PC world as it will mark the first time that the overall lead in the market has changed since Compaq took it from IBM seven years ago.

"It could happen this early," said Roger Kay, an analyst with IDC. "Compaq took it from IBM, and they have been holding the crown ever since."

Compaq held the lead from 1994 through 2000. IBM was the largest PC company from 1991 to 1994, and for various years in the 1980s. Apple Computer shipped the most in 1990, according to Kay.

Although Compaq should rebound slightly after the first quarter, Dell will likely retain the top spot, the report continues. For the entire year, Dell is expected to ship approximately 18.5 million computers to hold 14 percent of the worldwide market, according to the study. By contrast, Compaq will likely ship 15.6 million units for 12 percent global market share.

Both companies are experiencing slower-than-normal growth. Compaq, however, also has to deal with excess inventory, according to several analysts. Because it builds computers to order, Dell does not face a similar situation.

Dell passed Compaq as the largest PC manufacturer in North America in the third quarter of 1999 and has been steadily gaining ground in the world market.

Becoming the largest PC manufacturer in the world, however, can be considered a mixed reward. Sales after all are slowing. PC shipments are expected to grow by only 1 percent in the first quarter and 5 percent for the entire year, Munson wrote. "Note that 5-percent year-to-year unit growth will be the lowest since the beginning of the PC industry in the early 1980's," she wrote. Overall, 131 million PCs will leave factory doors this year.

Compaq has begun to de-emphasize overall market share and concentrate more on specific sub-segments of the market. Handheld computers and Internet devices also have taken on increased importance at Compaq. Dell has released a home MP3 player but has moved far more cautiously into the device arena. Unlike Compaq, it does not currently sell a handheld under its own name.

"We've decided to focus more on profitability than chasing market share," said Mike Winkler, executive vice president of Compaq's global business units. "That is more important to our business right now."

"The IDC numbers don't include a lot of the devices we group with PCs," Winkler said. "They don't include the iPaq devices--the handhelds--and I don't even think the iPaq desktop devices are in there. They also don't include the very significant thin-client business we have."

Besides slowing unit growth, PC prices also continue to decline. In 2000, the average selling price of a base-level PC was $772, Munson wrote. In 2001, that will drop 7 percent.

Another challenge for U.S. PC makers lies in foreign markets. The PC markets in Asia and Latin America are growing at a faster rate than the equivalent markets in Europe and North America.

U.S. manufacturers are building overseas factories and increasing their sales presence, but they are not growing as fast as generic or "white box" PC makers. These companies also have to compete against such regional players as Poland's Optimus and Legend in China.

News.com's Joe Wilcox contributed to this report.