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HP lurching toward top spot in consumer market

Although it's not exactly a company known for panache or eye-catching TV campaigns, Hewlett-Packard appears to be closing in on the No. 1 position in retail PC sales.

Although it's not exactly a company known for panache or eye-catching TV campaigns, Hewlett-Packard appears to be closing in on the No. 1 position in retail PC sales.

Through a combination of astute marketing, low prices, and missteps by competitors, HP has emerged as a leading force in retail PCs. In August, the company passed Compaq Computer to become the No. 1 retail PC maker for the month.

And, while HP likely fell behind Compaq again in September, circumstances appear to give the company a chance to overtake Compaq more consistently.

"There is a very good potential that HP could be a very strong No. 1 by Christmas time," said Matt Sargent, an analyst at Infobeads, who noted that 6 out of the 15 top-selling consumer PCs in August came from HP.

It's a broad-based attack for the Palo Alto, California-based company. "They are taking advantage of the printer, scanner, and drive thing," added Stephen Baker, an analyst with PC Data. "HP has come out with some good products and prices. They have been building their distribution."

The company has also is jumping on the music download craze. HP today released five new consumer Pavillion PCs. Four contain CD-RW drives, which allow users to record music onto blank compact discs. The new PCs also come with recording software from MusicMatch and ten MP3 songs.

"CD-RW is a hugely hot category, " said Baker. Including CD-RW also lets HP push its "unified" technology message--the company is one of the largest manufacturers of CD-RW drives.

HP, of course, has been selling PCs into the retail market for years, and has actually been in the No. 1 spot for brief periods of time. The problem has come in consistency. In September 1998, for instance, HP garnered the top spot with 33 percent of the retail market, according to Sargent, only to drop to 18.6 percent share, or third place, the following month. These swings have often been caused by fluctuations in available inventory.

Though inventory fluctuations still take place, HP has managed to stabilize and grow its retail share through a variety of factors, said Baker, such as bundling printers or scanners in with its PCs.

HP's printers have long enjoyed brand equity among consumers. By bundling products together, "they can show a more unified message to the consumer," he said, because all of the technology is coming from one source. "It seems to be pretty successful."

Further, HP has broadened the variety of PCs it sells. While it sells several in the budget sector, HP has also been concentrating on high-end systems. In many ways, this is a role that in the past was played by Compaq, Baker noted. In the August survey from InfoBeads, HP had the most expensive PC on the list, a 500-MHz Pentium III at $1,678, as well as the third cheapest, a Celeron system at $588.

Style has also been noticed. Two of the new Pavillions released today come in translucent cases.

The company has also been the beneficiary of problems at competitors. Once-strong Packard Bell has seen its market share slip precipitously in the past two years. Compaq continues to grapple with image problems that began when it terminated then-chief executive Eckhard Pfeiffer.

Meanwhile, IBM admitted today that it will pull out of the retail market next year on a trial basis. Observers say IBM has shifted because it hasn't been making money in retail.

"They are taking advantage of other people's problems," said Schelley Olhava, an analyst with IDC, who added that HP's share grew by 84 percent in retail in the second quarter 1999 compared to the same period the year before.

"When IBM exits retail, it will create a vacuum that will be filled by the others," she added.