Vendor commits to online sales

Compaq has again retained its heavyweight title as the world's largest PC vendor. Its much-anticipated first-quarter results showed that the company is still sitting pretty. But in light of its recent claim that half of its sales will be direct by 2003, will the channel remain in its corner or throw in the towel?

According to market analyst IDC, Compaq retained its top global spot, fending off competition from direct vendor Dell, the number two. IDC said that despite its problems in the past 12 months, Compaq is now firmly established in Europe as a serious long-term rival to market leader IBM. The vendor increased its total share of the IT market in EMEA in 1999 as a direct result of its acquisition of Digital.

Compaq has for some time pledged to develop a hybrid sales model, both direct and indirect. However, it recently committed itself to large-scale direct selling on the web, a strategy that may one day take a substantial portion of business away from the channel, but at present is no more than a speck on the horizon, according to market watchers.

Chris Bakolas, technical director at Dan Technology, doubts that selling direct will threaten the channel. "Selling direct is easy to talk about, but it's not easy to do. It's very common now for companies to say these things - if I was Compaq I would say that - but whether or not it will have an effect is something else."

Extravagant claims
In Compaq's favour, consumer interest in personal computers is not slowing down, as separate studies by IDC and Dataquest reveal. Worldwide PC shipments increased by about 20 per cent during the first quarter. But even this does little to support the manufacturer's claim that half of its business will move online by 2003.

Michael Dornan, analyst at researcher Gartner, said that Compaq's figure of 50 per cent sounded high and that Gartner's figures show that currently only one per cent of consumers buy PCs online.

"I don't see Compaq doing that. Computers are complicated things to buy online and Compaq is still covering its retail business, which suggests it doesn't believe in the claim itself," said Dornan.

PC shipments around the world increased by 15 per cent in the first quarter, said Dataquest, while IDC reported a volume increase of 20 per cent year on year, driven by strong sales in Asia Pacific, Japan and Latin America. IDC also claimed that healthy consumer demand and continued expansion of the Asian markets propelled worldwide shipments to 30.4 million units. The figures differ between the two researchers because Dataquest does not include server sales.

In contrast, IBM's global shipments fell by 15 per cent because of millennium bug fears and an upheaval in the consumer market. Dataquest listed NEC as the number-five biggest seller worldwide, while IDC ranked Fujitsu Siemens in that position.

Charles Smulders, an analyst at Dataquest, said sales in Korea, Japan and the Middle East were especially strong. Europe, which represents a larger market, experienced lower than expected shipments.

While the outlook for international sales appears bright, mainly due to economic recovery in the Asia Pacific region, the US market is cloudier, he said. "From a worldwide perspective, there are some concerns," said Smulders.

Strong home sales
IDC reported that internet demand and lower PC prices in western Europe continued to drive consumer sales, while strong PC interest from small and medium sized businesses also fuelled volume expansion. Poor commercial PC sales in Europe were partly offset by stronger sales of home PCs.

Bruce Stephen, group vice president of personal systems research at IDC, said: "We believe commercial market demand has started to stabilise in most regions of the world, and purchase patterns should return to more normal rates during the second half of the year."

A separate IDC report on IT suppliers' market share showed Compaq's share of the EMEA IT market in 1999 was 7.2 per cent, up from 6.3 per cent before the Digital acquisition. This places Compaq ahead of Hewlett Packard (HP) as the second-largest IT provider in the region. In the total market of solutions covering hardware, software and services, IBM increased its market share in 1999 from 9.5 per cent to 9.8 per cent.

IDC also predicted technology investment in western Europe will increase by 10 per cent this year, and 11 per cent in 2001, as European businesses start to march ahead of global competitors in many crucial technology areas.

Stephen Minton, EMEA research manager at IDC, said: "Software and services continue to lead the way. The move towards a service-driven market is now inevitable and unstoppable. There is still a lot of money to be made in hardware, but increasingly we are going to see hardware shrink into a smaller part of the market for total solutions. I would say that the message is quite simple: get into Europe and get into services."

Slowdown in Europe
PC shipments in EMEA increased by only 11.1 per cent in the first quarter of 2000, compared with the same period last year, said IDC. Post-millennium slowdown among large businesses saw PC shipments rise only 8.1 per cent year-on-year in western Europe.

Despite sustained demand from small and medium sized businesses, commercial desktop and PC server sales declined in the area. However, consumer sales remained healthy, driven by internet demand, competitive pricing and increasing PC penetration in southern Europe. Apple and Tiny Computers experienced double-digit growth. Among the market leaders, only HP managed to record substantial year-on-year growth.