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Dell creams Compaq in U.S. server sales

For the first time, Dell Computer wrenches the U.S. server crown from Compaq Computer, which is "declaring war" to defend its core turf.

A week after becoming the world's top PC seller, Dell Computer has for the first time wrenched the U.S. server crown from Compaq Computer.

But Compaq is "declaring war" to defend its core turf, according to an internal memo seen by CNET

Dell sold 38 percent of the 247,500 Intel servers sold in the United States during the first quarter, while Compaq sold 32 percent, according to preliminary figures from Dataquest.

The market itself shrank 1.7 percent in the first quarter compared with the same period last year, Dataquest said. Dell was able to boost its share by increasing unit shipments 32 percent. Compaq's shipments plummeted 17 percent.

The news comes a week after Dataquest said Dell had for the first time won first place in the worldwide computer market--statistics that include servers as a relatively small subset. Although PCs ship in much larger numbers, servers--which often have multiple processors and other high-end features--cost more and come with better profit margins.

But Compaq isn't going down without a fight. The company still leads in worldwide sales for Intel servers, which is one of its largest revenue sources.

"Today I am declaring war. I want everyone to understand the seriousness of the situation and make the defense of our server superiority a top priority," Jim Milton, general manager of Compaq's North American server business, said last week in the internal memo. "This is a fight for server leadership, and right now our lead is threatened."

Milton gave the Compaq sales force permission to aggressively defend its turf. "To support you, we have expanded your ability to compete on price," he said in the memo.

Server sales
Here are preliminary first-quarter figures for Intel-based servers from the top five companies.
Company Number Market share
Dell 94,700 38.3%
Compaq 79,900 32.3%
IBM 31,000 12.5%
HP 19,600 7.9%
Gateway 5,500 2.2%

Source: Dataquest

The Houston company's sales strategy should emphasize not just its hardware, but also its services, customer support, and partnerships with other computing companies, Milton added.

It's not the first time Compaq has gone after Dell. Last year, the company launched its "Dell Win Back" program to protect or snatch back top customers lost to the Austin, Texas, competitor.

However, Dell spokesman Bruce Anderson said his company is in the midst of an inexorable march to further its gains. "The U.S. comes first; worldwide comes second," Anderson said.

At the same time, Dell faces its own hurdles. The company is gaining market share, Technology Business Research analyst Brooks Gray said, but not as fast as it wants or plans.

"They know they need to grow their server and storage revenue much faster than they have. That's going to be difficult given the current (economic) conditions," Gray said.

Selling servers means more revenue, more prestigious customers, and sometimes a foot in the door that can drive more PC sales.

Dell is selling its systems at low prices to gain market share, Gray noted. For example, a special-purpose storage device Dell buys from Quantum then resells under its own name actually costs less from Dell than from Quantum. "I don't expect them to let up on their aggressive pricing tactics for quite some time," Gray said.

Sun Microsystems and IBM both have said that today's extremely competitive market has led them to discount list prices on their own Unix servers--typically higher-end products than Intel servers.

In the Dataquest study of Intel servers, IBM came in a distant third, with 13 percent of the market. Hewlett-Packard, with 8 percent, was fourth. Gateway, with 2 percent, was fifth. Acer, with 1.3 percent, was sixth.

IBM's shipments decreased 8 percent to 31,000. HP's increased 1 percent to 19,600.

Apple Computer, whose server shipments were dwarfed by those based on Intel or Intel-compatible chips, was in seventh place. It shipped 1,800 servers in the quarter, a 63 percent decline compared with the same period last year.