The Round Rock, Texas-based PC maker captured the top spots selling PCs and notebooks to medium and large businesses and also posted record growth, according to International Data Corp. (IDC). IDC defines medium-sized businesses as 100 to 499 employees.
But the market researcher warned there is no guarantee Dell will continue to dominate these highly competitive markets.
"Dell has a lot of momentum, that's the bottom line," said IDC analyst Roger Kay. "Compaq is still mending itself, and it will be several more quarters--if things go very well--before they pick up the same momentum they had before. IBM faces similar problems.
"Dell, despite their performance, is operating in an increasingly difficult environment," said Kay, who pointed to Dell's recent decision to lower its growth expectations to 30 percent from about 38 percent.
Compaq and IBM face similar challenges as they move from largely indirect to direct sales models. Houston-based Compaq is losing money on every commercial PC it sells, with its commercial computing division posting losses of $157 million and $79 million, respectively, in the third and fourth quarters. Dell is also dealing with a memory problem on some of its notebooks.
Indirect sales rely largely on selling through dealers and prebuilding systems based on sales estimates rather than Dell's more efficient build-to-order and ship-direct sales method. Technology Business Research analyst Lindy Lesperance estimates it costs Compaq twice as much as Dell to build and sell each commercial PC.
Those changes didn't come fast enough to fend off Dell, with U.S. PC shipments to medium and large businesses up 57 percent last year and portables increasing 48 percent in 1998.
In the fourth quarter, Dell had 34 percent U.S. PC market share, compared to Compaq at 18 percent. While Dell posted growth of 40 percent in the medium and large business segment, Compaq declined 30 percent.
"Clearly Compaq's downward spiral has to do with their transition, and they also took a hit because of Y2K," said IDC analyst John Brown.
In commercial notebooks, Dell widened its lead over IBM, which plans a major revamp of its PC division. Armonk, N.Y.-based IBM next month is expected to unveil a new PC brand and will plan radical changes to its notebook line later in the year.
For the fourth quarter, Dell had 30 percent U.S. notebook share selling to medium and large businesses, compared to 18 percent for IBM. But IBM's second-place ranking is no sure thing for the future, Brown said. Toshiba and Compaq had 14 percent and 12 percent market share, respectively.
"They're all within striking distance of each other," Brown said.
Worldwide, Dell and IBM were much closer--with 19 percent and 17 percent market share, respectively--for the fourth quarter. With strong sales of the ThinkPad i Series and ThinkPad 570 combined with changes IBM is making selling systems, Big Blue could easily close the gap, Brown said.
IBM is also preparing some surprises for Dell on the product front. Later this year, Big Blue will enhance its notebooks to support Bluetooth and other wireless technologies, as well as add a multi-purpose connector, code-named Portofino, to the ThinkPad line. Portofino will support a variety of enhancing peripherals, such as PC cameras and Bluetooth wireless devices. IBM also plans to radically change the form of notebooks, including offering a wearable PC.
IBM, like Compaq, has been cranking up its direct sales efforts, increasingly relying on the Web and planning to sell direct to 14 of its largest customers.
Big Blue is also turning up the heat with corporate extranets--specialized e-commerce Web sites extending from the computer maker's network to the customer's--following Dell's success in the same area.
IDC concluded Dell's extranet efforts clearly have paid off, making it easier for some of its largest customers to buy systems. Through the Web sites, authorized employees can order systems and peripherals direct from Dell. The method simplifies the accounting and approval process as well as the ordering.
Both IBM and Compaq have been rapidly building e-commerce extranets for their customers. As of December, IBM had put about 450 extranets in place for its largest customers.