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HP surges ahead of Compaq in retail PC sales

Hewlett-Packard rolls over Compaq in February retail PC sales, delivering the troubled PC maker yet another black eye.

Hewlett-Packard rolled over Compaq Computer in February retail PC sales, delivering the troubled PC maker yet another black eye.

Compaq, the perennial leader selling PCs at retail, is top dog no more and likely will never permanently regain its lead, according to market research firm PC Data.

"At best it will likely be neck and neck going forward," said PC Data analyst Stephen Baker.

HP grabbed 42.3 percent of the retail market in February, up from 35.4 percent in January. Houston-based Compaq lost market share from January, coming in at 32.6 percent. Third-ranked Emachines captured 14.1 percent of the retail PC market in February.

The news is not good for Compaq, which had been able to point to its consumer PC division as a bright spot compared with its money-losing commercial PC operation. Last year, Compaq also ceded the top spot in overall U.S. PC sales to Dell.

Consumer PCs account for about 16 percent of Compaq's revenue, but because of their low prices, the computer maker needs high unit sales to maintain profits. Compaq makes as little as 4 percent on every consumer PC it sells--the majority at retail--and cannot afford a slugfest with HP, say analysts.

HP started gaining momentum last September and hasn't made any major mistakes yet, Baker said. Its success strategy has been simple: Offer better-quality systems with more features for a good price, but not necessarily the lowest price, Baker said. Compaq, by comparison, has increasingly competed in the sub-$600 market, which is declining.

Some of Compaq's other strategies have not paid off, either. Although Compaq has over 9,000 in-store kiosks--so consumers can order custom-built systems direct from the PC maker--they account for a mere 5 percent of retail sales.

"HP has been real strong offering people a lot of interesting configurations," Baker said. "They've been really pushing CD-RW, and they get a lot of branding as well because everyone knows they make a lot of the after-market drives."

Palo Alto, Calif.-based HP also benefited from IBM's exit from retail in favor of direct telephone and Web sales. Moving back to offering AMD processors also helped the PC maker offer more competitive prices.

HP and Compaq each had two of the top five sellers in February, according to PC Data. The HP Pavilion 6630, a 500-MHz Celeron system, came in first, with an average selling price of $638. The Compaq Presario 7380, packing a 500-MHz AMD K6-2 processor, followed for an average $621. The Presario 7470, for $826, took the third spot, followed by the Pavilion 6640. The systems had nearly identical configurations, including 533-MHz AMD K6-2 processors and CD-RW drives. The Emachines Etower 466, for $471, pulled up the rear.

Overall, PC prices dropped for the first time since September, after rising more than 20 percent through January. The average PC cost $845, down from $865 in January and 20 percent from February 1999.

Unit sales were up 37 percent and revenue up 22.5 percent from a year ago. These are the biggest gains since September.

Sub-$1,000 PCs continue to remain the strongest segment, with 77.2 percent market share. This segment has consistently maintained a 75 to 80 percent share for the last six months, and PC Data forecasts no immediate changes.

Sales of sub-$600 PCs are near their lowest levels since Internet rebates bolstered this market last June. Sub-$600 PCs accounted for 29.2 percent of the retail PC market, up from $22.1 percent in January.

PC Data said consumers are shopping for slightly more expensive systems packing more features.

"The reason the prices have steadied or gone up a little bit is because the value in the market is not spending $499 or $599," Baker said. "If you want to get something that has a lot of stuff in it and keep you going for a long time, you should spend $799 and $899. Customers are smart; they go where the value is."

One factor contributing to that value is the success of offering CD-RW drives for recording CDs with digital music downloaded from the Internet. Two of the top five retail PCs in February came with CD-RW drives. Overall, 45 percent of all PCs sold in February packed CD-RW drives, up from zero a year earlier.

Another surprising change is the uptake in PCs selling between $1,500 and $2,000. While this price range only accounted for 6.8 percent of the retail PC market in February, that figure has remained surprisingly constant since December, Baker said. Typically, computer manufacturers sell more higher-priced systems during the holidays, but that number usually drops significantly thereafter.

AMD's assault on the retail PC market, for the time being, has level off. AMD had 42 percent of the retail PC market vs. 58 percent for Intel. While the figure is nearly level with January, it is a substantial increase over last autumn, when AMD struggled to maintain a 30 percent share.