Research Brief

 

Financially Troubled Vendors Dominate PC Landscape in 95

 

Compaq Computer Corporation maintained its leadership position for the second year in a row for PC Desktop, Portables, and PC Servers in 1995. As the table below shows, the top PC vendors all grew faster than the industry as a whole. Personal computer shipments grew over twelve percent for 1995. The top four vendors all managed to grow at better than double digit rates, shipping a combined total of 9.6 million units, or 46% of the market.

US Placements

Desktops, Portables and PC Servers (000s)

Vendor

1994

1995

Market Share %

% 1994 - 1995

Compaq

2257

2793

13.29%

23.77%

Packard Bell

2093

2493

11.86%

19.10%

Apple

2187

2,487

11.83%

13.72%

IBM

1608

1856

8.83%

15.46%

Gateway 2000

962

1129

5.37%

17.36%

Hewlett Packard

485

1014

4.82%

109.01%

Dell

733

898

4.27%

22.51%

Acer

523

833

3.96%

59.26%

Toshiba

624

763

3.63%

22.37%

AST

760

670

3.19%

-11.90%

Other

6472

6080

28.93%

-6.05%

Total

18703

21016

100%

12.37%

Source: Workgroup Strategic Services, Inc.

Go to Workgroup Market Models

Surprisingly, two of the top four vendors made headlines with their financial problems. Packard Bell allegedly fell behind in its payments to Intel to the tune of $470 million. Intel turned the overdue receivables into a loan but it was not enough to help Packard Bell out of its financial crunch. Packard Bell recently negotiated a deal with Groupe Bull to acquire Zenith Data Systems along with a cash infusion from NEC Technologies. Both Groupe Bull and NEC hold 20% equity stakes in Packard Bell. Workgroup Strategic Services expects Packard Bell to lose some market share in the retail channels due to its large inventory of 75 MHz Pentium systems. The acquisition of Zenith Data Systems will boost Packard Bell’s shipments into the corporate environment, a market Packard Bell has not penetrated to any great extent. However it will take at least a year to sort out how the two product lines will be combined and segmented. Further, the cash infusion from NEC is considered a stop gap measure, Workgroup Strategic Services expects NEC to pour more money into Packard Bell, eventually taking equity control of the company.

Apple Computer was also in financial turmoil as it increased its shipments by over 13% but lost money in the process. After much publicized merger negotiations with Sun Microsystems, Apple ousted its CEO and President Michael Spindler and replaced him with Gilbert Amelio, a respected turnaround artist. Apple is now reorganizing its marketing, production and operations in an attempt to return to profitability. Rumors persist that Amelio is working to increase Apple’s stock value for future merger discussions. Apple is losing ground in the corporate and consumer markets but still remains strong as an Internet development platform and in the education markets. Workgroup Strategic Services expects Apple to trim its product line and focus on its niche markets - education, Internet development systems, and graphics and desktop publishing. The key to Apple’s success will be a more effective reseller program that supports, rather than hinders, its channel partners.

Hewlett Packard and Acer experienced the highest growth rates, reflecting a strong push by each vendor into the retail sales channel. (See Workgroup Strategic Services Briefing Statement, "Vendors Battle for Retail Presence") Acer developed new consumer PCs that offer a more modern look equated with high tech consumer appliances including a choice of colors and unique PC form factors. To Acer’s credit, it also leveraged its manufacturing capability to support resellers that build custom systems. In this way, Acer is building strength in both the consumer retail channel and with resellers that target corporate customers.

With the help of Intel, Hewlett Packard entered the retail channel with the Pavilion line of computers. Later in the year, Hewlett Packard offered its own version of the Pavilion line, with market availability timed with each Pentium announcement. Hewlett Packard tied its strategic direction more closely with Intel through the development of the P7 architecture, which combines HP’s RISC architecture with Intel’s Pentium platform. Hewlett Packard will continue to develop its own RISC-based processors but will clearly benefit from its relationship with Intel for future processing architectures. Workgroup Strategic Services expects Hewlett Packard to build strength in the consumer retail channels, in part due to solid PC price performance from the Pavilion line, but also from its excellent reputation and experience in selling its laser printers through the same outlets. Additionally, we expect Hewlett Packard to maintain its reputation for excellence in the corporate based reseller channels.

Gateway 2000 is one of the second tier PC vendors that survived the industry price wars. Margin pressure forced many of the marginal computer manufacturers to go under. Gateway 2000 is now adding more service capabilities for its customers and still maintains a leadership position in the direct marketing / mail- order distribution channels. (See Workgroup Strategic Services "Personal Computer Placements By Channel - United States 1993-1998")

Toshiba’s double digit growth comes strictly from portable sales, although recent indications show it may enter the desktop market in 1996. The portable market is growing significantly, in 1994 15% of all PC sales were portables. Workgroup Strategic Services predicts 19% of all PCs sold in 1997 will be portables. Toshiba’s leading edge portable technology will help it maintain a leadership position through 1997.

In summary, the big got bigger and the smaller players lost ground in the PC market. The stronger PC vendors continue to position themselves against future margin pressures by leveraging their manufacturing strengths and efficient distribution channel programs; while vendors like AST, who have slipped, continue to fall. Notably, three of the top PC vendors are focused on adding value to the standard PC design. Packard Bell made the top four through a high volume, low margin approach that may be its financial undoing. Compaq, Apple and IBM all have strategies that offer a competitive difference within the architecture of the personal computer. As the operating systems, applications and user demands place more emphasis on optimizing PC performance, Compaq and IBM are particularly well suited for continued success.