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Compaq losing its grip

The leading PC maker surrenders four points of U.S. market share in the third quarter, while Dell, IBM, and others gain.

Although Compaq Computer has retained its No. 1 ranking in PC market share, the Texas giant is losing ground to all four of its closest competitors, according to reports released today.

PC market share in U.S.--Dataquest
Vendor % 3Q '98 %3Q '97 % Unit Growth
Compaq 15 19 -8
Dell 13.4 10.1 56
IBM 8.9 7.7 36
HP 8.4 7.5 33
Gateway 8.2 6.7 44
all vendors n/a n/a 18.2
Source: Dataquest

Compaq lost almost four points of market share in the United States in the third quarter and shipped about 8 percent fewer PCs than it did for the same period a year ago, according to reports published by International Data Corporation and Dataquest.

Dataquest reported that Compaq saw only a minor dip in international competition but that the company's U.S. market share dropped from a 19.2 percent to 15 percent. IDC said Compaq's domestic market slipped from 19.6 percent to 15.8 percent.

Dell, IBM, Hewlett-Packard, and Gateway all saw unit sales and market sales grow during that same period. Of the four, Dell, the No. 2 PC supplier, enjoyed the greatest growth. The company's market share leapt from 10.1 percent in the third quarter of 1997 to 13.4 percent in same period this year, according to Dataquest, while unit sales grew by over 56 percent.

PC market share in U.S.--IDC
Vendor % 3Q '98 %3Q '97 % Unit Growth
Compaq 15.8 19.6 -8
Dell 14.1 9.7 65
IBM 9.1 7.8 34
HP 8.4 7.5 27
Gateway 8.2 6.7 44
all vendors n/a n/a 14
Source: IDC

IBM, Gateway, and HP reported strong sales as well. IBM moved into the third spot, up from a No. 6 showing last quarter, through unit sales growth of approximately 36 percent. Year over year, IBM saw its market share grow from 7.8 percent to 9.1 percent in the United States, according to IDC.

No. 5 Gateway, meanwhile, closed the gap between itself and fourth-place HP by about half. Gateway saw its market share rise from 6.5 percent to 8.2 percent in the U.S. while HP grew from 7.5 percent to 8.4 percent, IDC said.

The market share movements evidence industry consolidation as well as problems Compaq has endured with product forecasting this year. Consumers and businesses have increasingly shifted their purchases to the big five PC manufacturers. Where the top five manufacturers held 51 percent of all shipments a year ago, they now account for 55 percent, according to IDC, and all five are experiencing sales growth that is at least twice the market rate.

Global PC market share--Dataquest
Vendor % 3Q '98 %3Q '97 % Unit Growth
Compaq 13.7 14.2 -10
IBM 8.6 7.9 24
Dell 8.4 5.9 61
HP 6.1 5.8 19
Gateway 3.9 3.2 38
all vendors n/a n/a 14
Source: Dataquest

Among the elite, direct marketers Dell and Gateway have been gaining at the expense of the traditional vendors as more customers turn to purchasing computers over the Web. In addition, Compaq has been saddled with excess inventory, which slowed down sales in the first three quarters, a problem shared to a lesser extent by IBM and HP. Dell and Gateway, by contrast, build their PCs to order and experience far fewer problems with excess inventory.

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Despite Compaq's sales slide, the company is still the dominant PC company, according to Roger Kay, an analyst at IDC. If the third quarter results are examined quarter to quarter instead of year to year, Compaq actually improved its standing. In the second quarter of 1998, when Compaq was suffering through the worst part of the inventory correction, Dell was running neck-and-neck with Compaq in terms of domestic market share. Now, Compaq has widened its lead to 1.7 percent, he pointed out.

Market figures do not tell the entire story, he added. The numbers only take into account computers that are manufactured and sold during the quarter, not sales of computers that were in inventory at distributors, that is, computers that left Compaq in earlier quarters but only got bought by customers in the third quarter. Because of the inventory legacy, more Compaq PCs actually went to customers than the figures reflect.

"Compaq pulled clearly into the No. 1 place again," Kay said, "Compaq has resumed its growth."

Still, this is a far cry from the third quarter last year, when Compaq enjoyed a 19.6 percent domestic market share compared to Dell's 9.7 percent share.

No matter how you measure it, IBM has moved up in the world. From the second quarter of 1998 to the third quarter, it jumped to third place with a 9.1 percent market share, according to IDC, after not even being in the top five.

Part of is attributable to IBM's recent success with its home-oriented Aptiva line, Kay said. IBM was late to market with low-cost PCs, but now has good offerings and even is about to launch a low-end Aptiva model priced at $599, he noted. IBM, however, admitted in a recent conference call for analysts that its business PC lines have stayed relatively flat.

While the number of units Compaq shipped dropped 8 percent from the third quarter of 1997 to the third quarter of 1998, sales at other four companies increased a minimum of 33 percent, the Dataquest study shows. Overall PC sales in the United States increased 14 percent during the same period, IDC said.

While the statistics on U.S. sales from IDC and Dataquest are similar, Dataquest doesn't include PC servers in its study while IDC does.

Internationally, Dataquest also showed Compaq in the lead for global sales, with 13.7 percent of the market share. IBM was a not-so-close second, with 8.6 percent, and Dell followed at 8.4 percent.

Compaq's lead in global sales decreased slightly from the third quarter of 1997, when Compaq had 14.2 percent of shipments. In the global arena, Compaq did manage to increase its sales from 2.8 million to 3.1 million, but that didn't keep pace with the overall 14 percent growth rate worldwide.

PC demand is still healthy, despite hard times in Asia. "The outlook is pretty strong still for Q4," Kay said, at least in the United States and Western Europe. Although Asia has curtailed spending, it accounts for a relatively small part of the top five companies' sales.

Other companies, such as Japan-based NEC, are more heavily affected by the Asian economic problems, he said.