*NEWS*DELL & HP IN BATTLE,PC WAR BEGINS
*NEWS*DELL & HP IN BATTLE,PC WAR BEGINS
2004-02-15 at 11:02:00 am #5125Dell, HP battled in Q4 and as 2004 PC war beginsNEW YORK/SAN FRANCISCO, Feb 6 (Reuters) – The fight for market share between rivals Dell Inc and Hewlett-Packard Co.reached a full-scale battle in the fourth-quarter, and 2004 will likely be even more intense.HP, which recently eclipsed Dell as the No. 1 PC maker, and Dell Report quarterly earnings in the next two weeks and results from both are expected to be in line with, but not above, analyst expectations.
That’s because while PC shipments are rising, the companies are slashing their prices. At the same time, some PC parts have become more expensive, cutting into profits.
Analysts say the trend is likely to continue in 2004, when PC shipments — but not revenues — are expected to hit another record. They rose 11.4 percent in 2003, the first double-digit rise after years in which buying, particularly among corporations, had been lackluster.
The price competition the top two players spiked after HP took the No. 1 PC maker spot from Dell in the fourth quarter due to HP’s strength in retail stores and focus on corporate deals, analysts said.
“Hewlett is being more assertive and aggressive, especially in larger projects,” said Bob Rezaee, a senior analyst at institutional money management firm McMorgan & Co.
First Albany analyst Joel Wagonfeld said HP is responding to increased efforts by Dell. “We think Dell increased its promotional activity in January to reestablish price competitiveness,” Wagonfeld wrote in a recent research note, saying the move was particularly evident in the cheapest computers.
Dell, based in Round Rock, Texas, is likely to show that while strong sales of PCs helped revenue in its fourth quarter, profit gains were held back by higher costs for items such as computer memory chips and flat panel displays.
Electronics manufacturers, which make PCs for Dell and HP as well as making other products, have said in recent weeks that component prices are rising and there will likely be some short-term shortages.
Dell, which builds computers to order and sells directly to customers, is able to pass lower component prices onto customers. HP, which sells many of its computers through third parties, has a harder time benefiting from such price drops.
But when component prices spike, Palo Alto, California-based HP has an advantage for a period of time because it can sell PCs made with parts bought ahead of time and in its inventory. Dell carries little or no inventory.
“(Dell has) a little bit of a headwind because the component market is no longer their friend,” Rezaee said. “The market is constrained. It’s tight and it doesn’t really leave it a lot of leeway in margin improvement,”
Analysts have been worried in previous quarters about higher component prices hurting Dell, but Dell has said that, overall, prices are continuing to fall and that it expects more declines going forward, albeit at a slower rate.
Certain component price increases are in part due to the increase in demand for PCs in recent months. 2004 is expected to be marked by corporations replacing aging PCs, many of which date back to 1998.
“The economic situation has improved dramatically and broadly,” said Roger Kay, an analyst with market research firm IDC. “And the installed base of PCs is another year older, so there’s greater urgency to upgrade than there was before.”
But industry-wide revenue from PCs this year will likely fall as the trend toward falling prices for personal computers, particularly desktop computers, continues.
“With the continued price declines in the PC industry, even though there’s unit growth, revenue is quite flat and declining in some instances,” Kay said. “No one is as profitable as they used to be. Even Dell is going to have difficulty.”
When Dell reports on Feb. 12, analysts expect it to report earnings for the fourth fiscal quarter that rise 22 percent to 28 cents per share and a 18 percent jump in revenue to $11.5 billion, according to Reuters Research.
HP’s report, due one week later, is expected to show that earnings for its fiscal first quarter rose 21 percent to 35 cents per share and revenue that increases 9 percent to $19.4 billion.
While Dell and HP also sell large computer servers, computer printers and computer services, PCs are an important component of both companies’ total sales.
At Dell, PCs account for about 80 percent of its revenue. In HP’s fourth quarter ended Oct. 31, the personal systems group, which includes PCs, had revenue of $6 billion, or 30 percent of total sales