Current trends in the PC market point to a seemingly inevitable conclusion: The big will get only bigger.
With PC prices down and industry growth relatively flat, manufacturers are increasingly relying on server sales to increase market share and maintain profits. And the main beneficiaries will be the Big Four of PC manufacturers--Compaq Computer, IBM, Dell Computer, and Hewlett-Packard.
"The PC market on average looks like it's doing poorly because the only vendors that are doing well are the four big guys," said Mark Specker, an analyst with SoundView Financial Group. "They're destroying their competition."
Specker said that, of the big four, IBM is growing at about 1-1/2 times the market average. Dell is on the high end of that spectrum, growing somewhere between four and six times the market average.
"The biggest difference is that [the top four] are growing way, way, way faster than the average of the market," Specker said. "No one else is really growing. Packard Bell NEC is really giving it up. Acer, losing. AST, losing. Most of the European vendors are losing. Siemens may be an exception."
Because the top companies are so entrenched in the server business, NationsBanc Montgomery Securities analyst Kurt King said he doubts that "any other PC vendor will ever get more than a 5 percent market share in servers."
That bodes well for Compaq, which counts on servers for about 50 percent of its sales, and Dell, the hard-charging rival that is quickly moving into the higher-performance market.
Servers and high-end workstations historically have higher profit margins than consumer desktop models and the public's demand for low-cost, sub-$1,000 units only makes servers more important. Most analysts are forecasting flat to modest revenues this year for the industry with unit growth being wiped out by falling average selling prices.
King, speaking at the annual NationsBanc Montgomery Securities investment conference in San Francisco, also said corporate management and expanding worldwide market share will play a vital role in determining the haves and have-nots in the computing space.
Compaq and Dell, for instance, have consistently grown faster than the industry average and therefore been spared some of the recent market gyrations. Analysts say their success appears to be mostly attributable to strong management.
"In explaining the performance of these stocks, a statistical analysis shows that company-specific factors matter far more than industry-specific factors," King said.