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Dell closes the gap on Compaq

Dell is catching up to Compaq, the longtime leader in U.S. PC sales, according to two marketing research firms.

But for Compaq's June acquisition of Digital Equipment, hard-charging Dell would have surpassed the long-time market leader in U.S. PC sales during one of the weirder, and slower, quarters in some time.

The two companies finished the second quarter with nearly equal U.S. market shares of better than 14 percent, according to preliminary figures from Dataquest and International Data Corporation (IDC).

Analysts from both firms said overall demand was slack and the U.S. market grew slower than the rest of the world. Europe actually paced the world in PC growth, according to Dataquest.

Without Digital,

2nd-quarter U.S. PC shipments
(International Data Corporation)
Vendor % 2Q 1998 % 2Q 1997 % Unit Growth
1. Compaq     /Digital 14.4 14.3 11
2. Dell 14.3 9.1 72
3. HP 7.8 6.5 33
4. Gateway 7.8 6.5 33
5. Packard
    Bell NEC
7.6 9.4 -11
All Vendors n/a n/a 10
Compaq would have claimed only 13.5 percent of the U.S. market, behind Dell, according to Dataquest, although the Houston-based vendor would have retained its No. 1 worldwide ranking. IDC, which includes PC servers in its accounting, did not break out Digital sales but said that the two companies were close.

Compaq's slip is largely attributable to its inventory situation, both researchers said. Saddled with roughly 12 weeks of inventory, the company saw shipments of new PCs increase less than 12 percent. Dell, which didn't have inventory blocking new sales--the company says it turns 50 inventory cycles each year--saw its shipments increase by more than 70 percent.

Factoring out the inventory situation, Compaq's sales grew 39 percent in North America and 36 percent worldwide, according to Compaq. This would make it the second fastest-growing computer company, behind Dell, and give it the larger market share of the two.

Still, 39 percent growth lags behind the 49 percent growth figure the company posted for Q1, when it was already battling an inventory problem.

Total industry U.S. PC shipments rose about 10 percent from the same quarter last year, according to IDC.

But inventory doesn't explain all of the Round Rock, Texas, vendor's gains. Dell is closing the gap on Compaq because it seems to have momentum with customers.

"In large part,

2nd-quarter U.S. PC shipments
Vendor % 2Q 1998 % 2Q 1997 % Unit growth
1. Compaq     /Digital 14.4 15.3 5.8
2. Dell 14.2 9.1 73.7
5. Packard
    Bell NEC
8.5 10.0 -5.6
4. Gateway 8.1 6.7 35.5
5. HP 7.8 6.6 33.0
All vendors n/a n/a 12.0
Totals do not include servers.
it is [due to] the inventory situation, but even if you take that out of the mix, Dell is just plain growing faster," said Dataquest's Miller.

"You'd be surprised at the number of large companies that are saying, 'We've got to talk to these guys.' It overshadows what the others are doing."

"The brand has become very widely accepted. The product is well viewed. The fact that the company has done well in the stock market helps their image," added Bruce Stephen, group vice president, worldwide PC research, at IDC.

Hewlett-Packard and Gateway, meanwhile, racked up 30-plus percent growth while IBM saw unit shipments shrink because of a backlog in portables. Packard Bell NEC also suffered a decline in sales.

While some of the second-quarter sales trends will only have temporary effects, others point to long-term developments that will continue to impact the market for a while.

The reversal in growth rates for portables and desktops, for instance, comes from marketplace saturation. First-time notebook buyers are simply growing more slowly. The result could be some turbulence.

For instance, the change particularly stung IBM's sales. Big Blue declined to No. 6 in U.S. sales, according to IDC, although the company ranks No. 3 worldwide.

2nd-quarter worldwide PC
shipments (Dataquest)
Vendor % 2Q 1998 % 2Q 1997 % Unit growth
1. Compaq     /Digital 12.5 12.7 12.1
2. Dell 8.2 5.3 74.9
3. IBM 7.2 8.6 -5.3
4. HP 5.5 5.3 17.9
5. Packard
    Bell NEC
4.4 5.2 -1.8
All vendors n/a n/a 12.0
Worldwide, PC shipments rose only 7 percent over the second quarter of 1997 and declined 3 percent from the previous quarter, according to IDC. Growth in the U.S. market declined one percent from the previous quarter, IDC said.

"This was a very slow quarter. We haven't seen this kind of [slow] growth for over five years or so," said Scott Miller, PC analyst at Dataquest.

"There's all these reversals going on from the traditional pattern," he summarized.

Meanwhile, in the present quarter, Dell's surge could be cut by advances in the build-to-order manufacturing initiatives being rolled out by the traditional vendors. Inspired by the direct sales model made popular by Dell and Gateway, rivals have begun to implement "channel assembly" manufacturing methods aimed at reducing inventory overhead without alienating the network of resellers they have traditionally relied upon.

Compaq, IBM, and HP should begin to realize significant gains from their respective investments in streamlined logistical programs, both researchers say.