Tony, a large portion of DELL's market share gain came amid Compaq's inventory problems. DELL was able to underprice a comparable Compaq box by an average of 23% last spring, versus a historical underpricing of 10% or so. When Compaq was finally able to sort its inventory last fall, this discount narrowed back to 10% rather quickly. With the advent of its direct model, Compaq was actually able later on to match DELL's prices.
DELL's mistake (if in fact they even made one) was to not realize that the major reason that they gained sales over Compaq was price. My take on DELL's attitude now is that they don't think that their customer shops on price, but rather DELL's service. Thus, they haven't been as aggressive on price as has been their history. Thus, last quarter, their revenues weren't as strong as they could be, but they more than made up for that in better margin. As they continued to lose share in the past quarter, it may be that the top line weakness continued. And as a recent purchaser of both DELL and Compaq, I think that the service of Compaq is better anyway.
Of course, this could all sound silly Tuesday if DELL has another blow out. |
