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Compaq, IBM see server decline

Compaq has cut server prices amid a new report that shows both Compaq and IBM with shrinking U.S. market share.

Amid new numbers from a marketing research house showing a decline in domestic market share, Compaq Computer cut its server computer prices by up to 20 percent today.

Bloated inventories and upcoming product releases also have contributed to the price cuts, according to analysts.

Although still the dominant vendor for Intel-based servers, Compaq is now struggling with a bubble in product supply that will likely continue through the year, according to a new preliminary report from International Data Corporation (IDC).

Compaq, along with IBM, overestimated server demand in 1997, it said. At the same time, sales declined for both vendors. Compaq saw server shipments drop 10 percent from the fourth quarter of 1997 to the first quarter of 1998 while revenue dropped 28 percent, IDC added.

Partially as a result, Compaq's U.S. market share dropped from 36.9 percent in the first quarter of 1997 to 35.4 percent in the fourth quarter of 1997, then to 34 percent for the first quarter this year, although worldwide market share went up slightly year over year. Compaq's unit shipments were up year over year, but down from the fourth quarter.

IBM's market share and unit shipments declined from 13 percent in the fourth quarter of 1997 to 10.4 percent in the first quarter of 1998 domestically but was up overall on a year-by-year comparison. Meanwhile, both Dell and Hewlett-Packard saw market share and unit shipments rise year over year and sequentially.

"This is the first time [Compaq has] had a double-digit decline in a long time," said IDC's Amir Ahari. "The first quarter is more often than not flat. The channel is stuffed with servers and they had nowhere to put them."

Despite the glut, Compaq will also be coming out with new servers within a month that will feature the 350-MHz and 400-MHz Pentium II processors released in April.

Compaq's steepest price cuts came on departmental and workgroup servers, although prices were cut on high-end corporate "enterprise" machines also.

At the low end, the ProSignia 200, which comes with a 233-MHz Pentium II processor a 4.3GB hard drive and 64MB of memory, was discounted 9 percent to $2,071.

The ProLiant 800, a Pentium Pro based server with 64MB of memory and a 4.3GB hard drive, was cut 20 percent to $2,433, while the ProLiant 800RH, a similar server with more memory and a larger hard drive, was cut 10 percent to $5,603.

On the high end, price cuts ranged from 2 to 8 percent. The ProLiant 3000, which contains a 300-MHz Pentium II, 256MB of memory, and a 36.4GB hard drive, dropped 8 percent to $11,655.