Yesterday it was reported that Acer, a strong global consumer-focused PC maker, passed Dell, the strongest U.S.-focused corporate PC maker, for the number 2 spot. While the market for PCs grew slightly at 3.9 percent, average selling prices cratered 20 percent, taking revenue and profits with them. It is interesting to note that Apple, which has been the most successful at holding prices, actually grew share 6.8 percent, showing it was at least possible to partially resist price reductions and grow share. (Be aware I'm using a mix of IDC and Gartner numbers, which often don't exactly agree with each other, though the ranking is consistent).
Let's talk about these numbers and the likely loss of PC leadership in the U.S., as defined by world market share.
One of the things left out of the discussion with regard to Apple is the mismatched timing between Windows 7 and Snow Leopard. Apple rushed its product to market and was able to ramp up inventories strongly in the third quarter (these are shipments, not sales numbers), while the Windows vendors were trying to manage down inventories in anticipation of the Windows 7 launch. Given the consumer-focused sales activity of the back-to-school season, I'd actually expected double-digit market share gains by Apple because the combined effect of Apple's inventory build-up and Windows vendor draw downs should have been more significant.
What may have happened is that part of Apple's strategy was a partial refresh of some PC lines to offset the big Windows 7 push. We should know this in a few days. This would have had it drawing down some inventories as well during this period, offsetting what would have been an artificial indication of demand anyway. It is artificial because the difference would have been created through inventory management, not because of any real increase or decrease in consumer demand.
However, had Apple spiked strongly, it could have used this to argue a massive trend toward its platform. As it is, Acer grew market share during this period by a "whopping" 25.6 percent by focusing solidly on the low end of the market (which is where the buyers actually are). Acer basically kicked everyone else, including Apple, all over the court. In fact, HP, the market leader, actually outgrew Apple as well, with IDC reporting a 9.3 percent growth, though I expect Apple will outperform all of these companies in terms of profitability. That will make Apple shareholders happy but will provide little protection for the massive Windows 7 wave that will start next week.
After seeing these numbers, I'm not as sure as I was that Apple will do well during the Windows 7 launch. (It should be noted that Windows 7 grew .3 percent last month, outgrowing the MacOS at .25 percent significantly, and it isn't even shipping yet).
Dell has two problems when it comes to market share, one by choice, and one by focus (suddenly I'm feeling connected to Paul Revere). Dell remains largely focused on the U.S. business market -- and the U.S. business market is not buying much at the moment. In addition, because Dell's financials haven't been meeting investors' expectations, the company has shifted from a focus on growing share to one of growing margins. This means it is trying to become more like Apple in terms of financial performance. Apple really doesn't care that much about market share (which is why there is no Apple netbook).
The corporate market for PCs isn't expected to come back until after Office 2010 ships, Windows 7 passes its first service patch milestone, and economic conditions improve for corporations. All conditions have to be in place for Dell to ramp back up. This could take awhile; most likely all conditions will not be met before 2011.
The next question is, if business comes back, will it come back on traditional platforms? With a lot of the employees coming back to work now having their own newer PCs, might line managers push to have policies allowing these machines in rather than spend money on new hardware? And, given that a lot of hardware was mothballed during the downturn, might it not be likely that a large amount of this hardware could be given to new employees rather than buying new, holding off a replacement cycle? Too early to tell in both cases, but the return of the corporate market remains iffy at best. That is why Acer and Apple, over the near term, look stronger. It's simply because, increasingly, individuals, not corporations, are driving PC buying, and individuals prefer buying in retail establishments, at least for now.
Dell's Strategic Blend
Dell is beginning to blend consumer concepts into PC lines and the new Dell Z series is the halo product for Windows 7 early adopters. It is not only a showcase of technologies, including inductive charging and wireless docking, that could trickle down into less-expensive products, it is a good attempt toward showcasing a product that has a better margin and a better value proposition for at least the high end of the business market.
This offering blends technology and design elements from both the corporate (security and manageability) and consumer (design, screen, performance) segments. In short, the Latitude Z is the most Apple-like business notebook currently on the market, and in terms of technology, moves well beyond anything Apple currently has released.
Wrapping Up: Market Shift
The numbers do indicate that margins can be held even in this market and that Dell is trying to learn Apple's lesson. However, the long-term risk is that the world corporate market may still not come back as expected and, when it does, it may come back differently and not provide the anticipated bounce. In short, while we may still see a hockey stick recovery in 2011, I don't think we can take it for granted this time. The industry should have a fall-back plan. Certainly it would be nice if, while the industry is still led from the U.S., the U.S. administration were on the helping side for once. Given recent moves, this seems doubtful so, for the near term, the consumer market is king and the U.S. may be losing its crown.