Dell gets fatter while lean HP flags

Profitability is no substitute to being big, shareholders will be happy to learn...

Dell's strategy of focusing on market share has left HP lagging behind as it searches for profitability in a flat market Dell's results show that in the current economic slowdown, market share is more important than profitability. Rob Enderle, vice president at Giga, said: "What is most interesting is that the companies are at clear opposites of the scale, Dell is buying market share effectively and, for the most part, out-performing the other major players. HP, who argues that profitability is more important than share, is clearly under siege and lagging behind the other firms." James Schneider, CFO at Dell, boasted that the company's cost structure model had improved efficiency and driven down inventory. Michael Dell, CEO of Dell, said this has enabled the company to gain considerable market share. Worldwide, the company is now number one in the notebook market, number one in the UK, Ireland and Norway in the desktop market and number two worldwide for desktop sales. "We are well positioned for a bounce back that should begin in the spring of next year," he said. Enderle agreed: " In the end, this market downturn has resulted in an opportunity for Dell to own the PC market and it is executing against that opportunity." In contrast HP, suffered a slump of 90 per cent in sales and announced a company-wide e-procurement project designed to save $100m in fiscal 2002. The company will also cutting ties with 16 of its contract manufacturers - leaving only four - to save another $100m. "Both companies reflect market pressures, with HP being impacted more than most and Dell taking advantage of the situation to drive others, primarily Compaq, out of the market. Dell's strategy is working and while it is attacking Compaq most directly, their war is having an even greater negative impact on HP, " said Enderle. HP has been hit hard by the market downturn and seems to be, considering the other players in its class particularly IBM, suffering excessively. Leadership at Dell is executing well, HP leadership is not, he added. Not even HP's e-services could lift its fortunes. Caroline Sceats, analyst at Forrester research, said: "It'll be another 12-18 months before we start to see benefits from this. IT directors are aggressively being asked to cut cost from the bottom line."