Slowing PC sales spur diverse
strategies
By Ken Popovich, eWEEK
Dell to pursue market share, price cuts;
Compaq takes profits-over-sales route,
shunning price war
The PC industry's top two players are taking markedly
different tacks in addressing slumping sales.
Dell Computer Corp., in announcing its earnings, last
week said it will continue to aggressively slash prices,
sacrificing profit margins in pursuit of greater market
share. Compaq Computer Corp., the world's top PC
vendor, afterward said it would not compete in a price
war, preferring profits over sales.
While a price war may have little impact on larger
enterprises, Dell's strategy could attract small to
midsize businesses—which are more influenced by
price—as well as consumers.
But for smaller PC makers struggling in the harsh
economic climate, a price war could drive them out of
business.
Some degree of consolidation will occur this year, said
Kevin Knox, an analyst with Gartner Group Inc., in
Stamford, Conn. While declining to speculate on which
companies will drop out of the market, he said several
vendors are obviously hurting, including eMachines Inc.,
NEC Corp. and Acer Inc. "Those companies, as well as
other vendors, got hit extremely hard by the slowdown
in the fourth quarter," Knox said. "I think those are the
types of companies that need to rethink their PC
strategies."
Financial figures released last week underscored the
differences in Compaq's and Dell's strategies. Compaq
reported that its overall gross profit margin increased
1.5 percent, to 23.7 percent—boosted by strong sales
of higher-end servers. Dell, the No. 1 direct-order PC
maker, disclosed that its profit level fell 3 percent, to
what one analyst said was about 18 percent.
Another major PC maker that has joined Dell, of Round
Rock, Texas, in slashing prices is San Diego-based
Gateway Inc. The second-largest direct-order PC
company pledged to "take the lead" in cost cutting
earlier this month after it reported losing $94 million in
the fourth quarter.
But other leading PC makers, such as Houston-based
Compaq; Hewlett-Packard Co., of Palo Alto, Calif.; and
IBM, of Armonk, N.Y., are expected to lag in trimming
prices. Those companies garner most of their revenues
from non-PC sales, such as high-end servers, storage
devices and services.
Falling prices alone won't lure larger customers, said
one IT manager.
"Sometimes there is more to be gained by spending a
few extra dollars upfront to maintain the standard," said
Marshall Fernholz, procurement manager for the
American Medical Association, in Chicago. "Once you
start using different PC makers, the support costs
rapidly transcend the hardware savings." |
