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Dell keeps sales high--and prices too

The computer maker has snatched the top spot in U.S. PC sales from Compaq while managing to keep prices relatively high along the way.

Dell Computer has snatched the top spot in U.S. PC sales from Compaq Computer while managing to keep prices relatively high along the way.

According to revised numbers for the second quarter from International Data Corporation, Dell turned out to be the top-selling PC brand in the United States with 16.6 percent of the market, edging out traditional leader Compaq and its 16.5 percent share.

Perhaps most significant, Dell has accomplished this feat while selling computers that cost an average of $500 more than Compaq's. Although it is unclear whether either approach will lead to market dominance, Dell seems to be in a strong position.

The quarter initially belonged to Compaq. As previously reported, preliminary numbers put Compaq ahead, but Dell claimed the top spot in final figures released today.

"There was some late counting units of Dell's, I believe portables, which bumped Dell over the top," IDC analyst Roger Kay said. "In recent periods, Dell's dominance in desktops has become more clearly established. They were able to get the volume bump when added to their slight lead in desktops that gave them the overall PC crown."

IDC's figures lump together all devices--desktops, notebooks, workstations, and servers--that run on the Microsoft and Intel technology powering most personal computers today. Compaq still holds an edge worldwide, but that gap is shrinking.

The lead could easily shift back this quarter, however. PC sales this quarter are expected to grow 24.8 percent over the same period a year ago--more than earlier projections of 19.3-percent growth. The unexpected surge comes from robust demand for low-cost PCs--which helps Compaq--and the gradual economic recovery in Asian markets.

Moreover, Dell's average price for the quarter was $2,200 vs. $1,642 for Compaq, a significant difference considering how close the two ranked.

"We make a distinction between average selling price and relative price," said Tom Martin, Dell's vice president of marketing and business development. "ASP is pretty much an indicator of the part of the market a manufacturer focuses on. That means on average we sell into a higher market."

Average selling price is more an average price of all systems, while relative price is what buyers pay for a box. On a feature-for-feature basis, Dell systems tend to cost less than Compaq?s, analysts said.

For example, Dell came in about $150 less than Compaq on comparable 600-MHz Pentium III consumer PCs available today on their Web sites.

The two PC manufacturers adopted different strategies more than a year and a half ago, when Compaq clearly dominated Dell. Since, Dell has consistently gained ground.

Dell has kept prices level while adding features, while Compaq offered PCs costing less than $1,000, a market where it sells the bulk of its systems.

"Dell historically has provided the best value performance on high-end systems," said Lindy Lesperance, analyst with Technology Business Research. "Dell's sales team is also very adept in positioning to a customer the value proposition of buying a higher-end system now."

Dell also benefits from better component management and is quicker to pass on savings to its customers, Lesperance said. "For every five boxes Dell ships, Compaq has to ship about seven to make the same amount of money."

Still, Dell faces the challenge of falling PC prices and consumer demand for them.

Where the two companies will go next is anyone?s guess. Dell passed Compaq by just one-tenth of a percentage point, so the battle is just beginning.

"One should be careful forecasting the future based on this or defining the crossover moment," Kay cautioned. "They could run along very close in parallel for sometime and could be neck and neck for years to come."

Dell executives recently crowed about the company's growth in all nearly all segments of the computing industry. Dell is the leading supplier to corporate America, small businesses, government, and education, said Joe Marengi, senior vice president of corporate sales. The majority of sales go to large institutions.

Dell also grew by 100 percent in the second quarter over the same period last year in retail, said Paul Bell, senior vice president of the home and small business products group. This fall, the company will begin a major TV and print advertising campaign.

Dell has sunk in with corporate America as the brand to trust, Marengi said. Now, the comapny wants to "take the scale of Dell as a company [in the United States] and take it around the world," he said.