Earlier in this decade, when Hewlett-Packard
Then a perfect storm of troubles hit, and Dell's never been the same.
Hungry competitors and tumbling market share
PCs began looking less and less like commodity products, and more and more like consumer electronics products for which aesthetics and innovative design mattered a lot. This was especially true for notebook PCs, which soared as a percentage of overall PC sales. Apple's sleek hardware, running the company's Mac OS, might be the best example of this trend. But HP and Lenovo, the buyer of IBM's
Meanwhile, starting with Mark Hurd's arrival as CEO in 2005, HP began chipping away at Dell's manufacturing edge. Acer, leveraging low-cost Asian manufacturing facilities, also presented more of a pricing challenge. And as all of this transpired, Dell suffered from a series of missteps under Kevin Rollins, who temporarily took over as CEO from Michael Dell. The company's customer satisfaction ratings took a nosedive, just as the company faced rejuvenated competition. Talk about a double whammy!
Michael Dell's return as CEO in 2007 might have helped in some respects, but his company's reputation as the "gold standard" among PC manufacturers remains a distant memory.
Booming demand for inexpensive netbook PCs over the last couple of years has presented yet another problem for Dell. As netbooks cut into sales of more expensive notebooks, Dell faces fierce competition in the U.S. from Acer and other Taiwanese manufacturers, whose cost structures leave them well-positioned to profitably sell a functional PC in the $300 range.
All told, Dell has a very difficult two-front war on its hands. It has to deal with Apple taking more and more share on the high end, while Acer and its Taiwanese peers gobble up share on the low end. And from the looks of things, HP and Lenovo are causing problems on both fronts.
The latest PC market-share data from research firms IDC and Gartner reveal the extent of Dell's problems. After losing its position as the world's largest PC manufacturer to HP in 2006, Dell has now fallen to No. 3 behind Acer. Whereas IDC reported Dell controlling 17.9% of the global PC market in 2004, in terms of unit shipments, it now estimates that Dell had 12.8% of that market in the third quarter of 2009. HP's share, meanwhile, grew to a whopping 20.2%.
IDC also reported Dell's U.S. market share tumbling by more than 4% year over year, to 25%, putting the company behind HP. Meanwhile, Acer's U.S. share grew to 11.1%, and Apple's to 9.4%. And on a revenue basis, Apple is in even better shape than IDC's numbers suggest, since the company's average selling price per unit is considerably higher than Dell's.
Dell responds ... but not well enough
Dell has made some smart strategic decisions in recent years. It's begun to sell its PCs through retailers such as Wal-Mart
When I look at systems selling for less than $1,000, where the lion's share of Windows PC sales occur, I get the impression that HP still has an edge over Dell. Generally speaking, HP's notebooks look better, thanks to a metallic-looking finish, and both its notebooks and desktops seem to do a better job of integrating connectivity options and multimedia controls. To counter HP, Dell has made a big deal out of offering personalized colors for its notebooks, but the $40 price tag for that extra probably doesn't sit well with would-be buyers. Combine HP's superior design with its stronger retail clout, and it's no surprise that the company enjoys a branding advantage over Dell among consumers.
I've long admired Dell as a great American success story. A college kid decided to take on IBM and HP by selling computers out of his dorm room; less than 20 years later, he ran the world's largest PC manufacturer. Who can't admire that? But with the glory days of its youth long gone, it looks as if Dell is still having trouble adapting to middle age.
Fool contributor Eric Jhonsa wonders what happened to the kid from the "Dude, you're getting a Dell!" ads. Eric has no position in any of the companies mentioned. Apple is a Motley Fool Stock Advisor pick. Dell, Intel, and Wal-Mart Stores are Motley Fool Inside Value selections. The Motley Fool has a disclosure policy.