Global data on Q1 PC shipments released last week by IT research groups Gartner and IDC meant both good and bad news for PC makers. The good news was that worldwide shipments were continuing to grow – and were up on last year’s levels by 12.9 per cent to 53.2 million units according to IDC and 13.1 per cent to 57 million units according to Gartner, assisted by strong notebook sales. But cracks in the struggling market were beginning to widen and Dell, the world’s largest player, grew below the US market rate for the first time in seven years.
But of course, this is good news for others. With a newly-revived Hewlett-Packard (HP) on top form, and Asian giants Lenovo and Acer aggressively targeting US and European markets, 2006 looks to be a defining year for a market that is by and large diminishing.
Gartner PC analyst Ranjit Atwal explained to OPI+: "Q1 figures were below forecast. We expected the market to pick up more. It comes as a realistic check to vendors out there on the levels of growth in the market. This trend is expected to continue into 2007 and 2008… Vendors must decide whether to challenge for market share or maintain profitability in the region."
Dell’s marginal – but momentous – loss of share, from 16.9 per cent in Q1 2005 to 16.5 per cent in Q1 2006 according to Gartner data, is a reflection of slowing growth in its home market and barriers to growth in Europe. Atwal believes Dell is currently over-dependent on the UK where its direct business model has not developed as fast as it has in the US, which has been a barrier to its growth. He also urges the PC maker to look elsewhere such as continental Europe, where it has good growth rates, and central and eastern Europe where there is more demand.
Like other PC manufacuturers, Dell is also looking to other emerging markets for growth including China, India and Russia.
Over the near term, analysts expect Dell to increment a price war in order to regain share and boost volumes, a strategy that they believe the PC maker should approach with caution. As IDC’s Loren Loverde explained in his report: "Dell’s relatively slow growth may set the stage for more aggressive pricing in coming quarters. While this would help drive volumes, it would not help profitability."
Gartner’s Atwal believes lowering prices may not be enough for the world’s number one. "When Dell implemented this strategy five years ago, vendors couldn’t compete, but now they are in a better position to counteract," he said.
Certainly any cracks at Dell signal new pathways for rivals HP (with a 14.9 per cent share); Lenovo (with 6 per cent share); Acer (with 5 per cent share) and Fujitsu/Fujitsu Siemens (with 3.9 per cent share).
Lenovo, for one, is bullish. The Chinese PC maker, which bought IBM’s PC division last year for $1.75 billion, has since had its sights on the number two spot, which it hopes to achieve through worldwide growth including Europe, Asia Pacific and the US, with particular attention being paid to emerging markets such as Brazil, India and Russia. Raymond Gorman, spokesperson for Lenovo, told OPI+: "The combination of innovative products, the best customer service and affordable pricing will help put Lenovo in a position where we can realise market share gains in all worldwide markets."
Atwal, however, was reticent about Lenovo’s prospects on the back of organisational issues as a result of its merger with IBM’s PC division. "It can’t sort itself out," he told OPI+. "It has been well below market growth across the board, which is mainly because IBM and Lenovo have two very different cultures and as a whole the company is finding it difficult to drive excellence quickly through the supply chain and transfer basic messages. Its biggest issue is EMEA, where senior management needs to develop strategies and execute better."
Lenovo staunchly dismisses any merger issues and claims that core values and little overlap in product portfolios have allowed a "remarkably smooth" merger. Gorman said: "As we approach our one-year anniversary, we are confident that most of the issues that have slowed other technology mergers are now in our rear view mirror, and we are driving towards maximum supply chain excellence with greater focus."
HP’s merger of Compaq was certainly a merger fraught with lengthy complications. But now out of the woods, the world’s number two PC maker is ideally placed to capitalise on any losses made by Dell and others. Now it has sorted out sales and is looking after its customers at the base level, Atwal believes it will "drive the market rather than follow it".
Fellow hopeful Acer is also "optimistic" about moving into Dell and HP’s space, but Atwal believes the Taiwanese PC maker may have a tough time, especially in mature markets such as the US. This is mainly because its channel business model is not as big a differentiator as it once was and its brand is relatively unknown there.
As for the smaller players such as Toshiba and Sony, which are relying on growth in notebooks, Atwal believes there is no reason why they can’t pick up smaller shares but describes them, in essence, as being in "survival mode".
Indeed, as the market gets tougher – which it undoubtedly will – analysts are in agreement that it will give; consolidation will inevitably happen and players will leave the market.
And as far as volume goes, Atwal warns that the future is not hopeful. Although many PC makers are chasing the emerging markets, they do not offer the volume of Europe and nor could they make up for losses felt there.