HP aims to match Dell on price

For years, Dell has been the aggressor on matters of price, and its reward has been booming sales and a consistently high ranking in the PC market. Now, a post-merger HP is looking to match Dell at its own game.

Before HP absorbed Compaq Computer last May, its prices ran about 15 percent higher than Dell's. Now, they're more or less in line with those of the direct seller, said John Thompson, HP's vice president for commercial products in America. HP is selling consumer-oriented Compaq Presario PCs, for instance, that start at $399 after rebates, matching Dell's lowest-priced desktops for consumers and small businesses.

But Thompson stopped short of saying HP would try to beat Dell on price, a move that would likely spark a new price war in the PC market.

"We are going to price to the market as we go forward. We will do what we need to do, taking the lead from our customers and not our competitors," Thompson said.

HP says it has been using merger-related efficiencies, which lead to advantages such as lower component prices, to cut prices of its desktop and notebook PCs. It also now keeps much closer track of prices in the market. A new in-house pricing chart shows its position relative to competitors, Thompson said.

The company started trimming last fall on the portables side, reducing the prices of its Compaq Evo notebooks. Since then, it has also lowered prices of its Evo desktops. (Pricing on some Evo models, aimed at small businesses, fluctuate as a result of revolving promotions.)

Part of what's at stake for HP are its existing customers, whom it wants to switch over to new, post-merger equipment--machines such as the Evo desktops and notebooks, as well as its tablet PC and its Proliant server. It's out to win new customers as well.

Dell, meanwhile, isn't standing still. While HP has been minding prices, Dell has been working to expand and diversify its product portfolio. It has added revenue from new products, including network switches, projectors and its Axim PDA. It will also soon come out with a new Dell-branded printer line.

After market close Thursday, when Dell reports its fourth-quarter earnings, the company is expected to update analysts on its projections for the year ahead.

As 2003 rolls along, Dell will face an HP whose goal, Thompson said, is to be price-competitive, but at the same time to introduce innovative products.

"We have gotten value from the merger, we've gotten synergies in the supply chain, and, with increased volumes overall, we have seen cost savings from suppliers," Thompson said. "We are basically pricing the market. There will be instances where there are clearly advantages to HP, if you look at the total value proposition."

It's the customer's perception of value that will be key. PC makers, analysts say, don't necessarily have to have the absolute lowest price to win a customer, but they do have to get some bang for their extra buck.

"You can be $100 more, but you can have $100 more stuff," said Roger Kay, an analyst with IDC.

Those extras could include extra memory, a larger hard drive or services desired by a potential customer, Kay said. "But if you haven't got something substantial to show for it, you're out of luck."

Slicing the pie
Despite competition from the new HP, Dell has continued to gain market share. HP shipped about 120,000 more units worldwide than Dell during the fourth quarter of 2002, but Dell's shipments rose 24.2 percent and its market share increased from 13.2 percent to 15.7 percent year over year, according to recent reports from IDC and Gartner.

Dell also shipped the highest number of units in the United States during the fourth quarter, capturing 29.2 percent of the market, thanks to a 24 percent year-over-year gain in shipments. HP's U.S. shipments shrank by 6.1 percent, leaving it with a 20.8 percent share in the United States, IDC said.

HP counters those figures by saying it has increased shipments sequentially for the last two quarters. In the fourth quarter, for instance, the company's unit shipments increased by 21 percent worldwide compared with third-quarter shipments, according to IDC. HP also says it has stabilized its market share.

Where HP was No. 1 in the fourth quarter, Dell had the top spot in the third quarter. This back and forth is likely to continue for several quarters to come, IDC researchers predicted. Dell could, say, lose a few bids if HP can match its prices and include services or other extras the direct PC seller can't match. HP has signed several large deals of late, including one with the Internal Revenue Service, Thompson said.

"We think our strategy is working. We feel good about where we are," Thompson said, citing growth in sales to the corporate, government and education sectors over the past two quarters.

Dell, for its part, downplays the threat from HP and says it has no intention of falling behind on the competitive front.

"We're not changing our strategic direction. That means maintaining our competitive position on pricing and service to customers," said Mike Maher, a Dell spokesman.