HP Challenges Dell for PC Market Lead

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Slowing Demand in the United States Limits Worldwide Growth, According to IDC

Worldwide PC shipment growth slipped to 7.9% in the third quarter of the year, according to IDC's Worldwide Quarterly PC Tracker. Overall growth was down from 9.8% in the second quarter and double-digit growth over the prior three years. International shipments continued to expand at roughly 11% year on year, but slow growth in the United States pulled down overall results.

Growth in Europe has recovered after a slow second quarter, but a similar adjustment seems to have occurred in the United States during the third quarter. With a dominant share of the U.S. market and in the midst of efforts to refocus its business, Dell felt the brunt of the shortfall with shipments falling nearly 7% year on year in the U.S. Hewlett-Packard was able to leverage strong growth in international markets and relatively strong performance in the United States to boost overall volume incrementally ahead of its rival. Although HP volume was larger by roughly 28 thousand units, on volumes of nearly 10 million, IDC considers this is a statistical tie.

The outlook for growth in the second half of the year has been under some scrutiny as replacement activity has declined and the delayed launch of Vista gets more attention. Spotty growth in some markets contributed to these concerns, but the overall outlook has remained fairly positive.

"This quarter's results show a similar volatility to last quarter, with strong international sales and growth in portables reflecting continued demand while we saw weak results for Dell and the U.S. market overall," said Loren Loverde, director of IDC's Worldwide Quarterly PC Tracker. "Dell has had some negative publicity recently regarding its battery recall but it is hard to attribute the third quarter results to bad publicity alone. Dell will likely be very aggressive in the fourth quarter, and we will see how similar battery recalls affect other vendors. These factors may cut into fourth quarter growth, but overall we don't see a broad threat to fourth quarter growth."

"In the U.S. market, the focus continues to be on the transition from desktops to notebooks, with notebook growth being the sole bright spot while desktop shipments continued to decline," said Bob O'Donnell, vice president, Clients and Displays at IDC. "The impact of Dell's decline was particularly acute in the U.S. and led to a shrinking of the market versus the same period last year."

Regional Outlook

• United States - Slower than expected growth from Dell, which represents roughly a third of U.S. PC shipments, weighed heavily on growth in the United States. Overall, portables growth slipped quickly into single digits, significantly constraining the primary market driver. Despite disappointing results in the third quarter, IDC expect vendors to step up promotions in the fourth quarter to sustain growth.
• EMEA - After a slower second quarter impacted by the World Cup and channel inventory clearance, 3Q06 managed to beat expectations at 10% growth. This growth was driven by a buoyant back-to-school season and continued demand for notebooks, although consumer desktop demand continued to lag despite aggressive promotions in retail channels. Recent demand and a relatively clear channel support a solid outlook for the region.
• Japan - The Japanese market suffered another quarter of declining growth as commercial shipments remained flat and consumer volume fell in the face of competition from LCD TVs and other products. Dell continued to grow in solid double-digits year on year while most of its competitors declined. Still, seasonality played an important roll as Dell saw a sequential decline while top competitors saw volume increase from the prior quarter.
• Asia/Pacific (excluding Japan) - Growth in APeJ remained in double digits, with a strong showing from large regions and market leaders. China met expectations while India and South Korea saw increased demand.

Vendor Highlights

• HP had a very solid quarter, catching up to Dell after trailing its rival since the end of 2003. Growth in the United States slowed from recent quarters, but remained well ahead of the market and Dell. The company also saw important gains internationally, with strong growth in Europe and emerging regions.
• Dell saw strong growth in international markets - particularly in Asia/Pacific, Japan, and Latin America. However, growth in EMEA was slightly behind the market, and in the United States, which represents over 50% of its shipments, Dell saw volume decline by nearly 7% year on year with a double-digit decline in desktops.
• Lenovo grew slightly faster than the market again on the strength of its Asia/Pacific business. The company also saw a positive improvement in its European business. However, a stronger second quarter in the U.S. gave way to further contraction in the United States and Japan.
• Acer continues to grow at a rapid pace with solid gains across regions. Growth in Europe - which represent the bulk of the business - improved notably from an already solid base, while growth in other regions was more moderate than recent quarters, but still quite strong. Acer remains well positioned and poised to leverage its position in portables and other growth areas.
• Toshiba continued to benefit from strong demand for portables as growth remained solidly in double digits. EMEA, as well as other international markets, remained particularly strong for Toshiba.
• Gateway had a slow quarter, pulled down by lackluster consumer demand in the United States. International shipments grew in double digits and on par with the market. Growth in the U.S. was flat after several quarters of strong gains. Although the soft U.S. market meant Gateway's growth kept pace in individual markets, the company's focus on the U.S. limited its overall growth.
• Apple had a very good quarter with shipments increasing more than 30% in all regions except Japan. The growth is an excellent sign of the success of Apple's transition to Intel based systems.

Top 5 Vendors, Worldwide PC Shipments, Third Quarter 2006 (Preliminary)

(Units Shipments are in thousands)

Rank	Vendor	Q3 '06 Shipments	Q3 '06 Share	Q3 '05 Shipments	Q3 '05 Share	Q3/Year Growth
1	HP	9,831	17.2%	8,540	16.1%	15.1%
1	Dell	9,803	17.2%	9,465	17.9%	3.6%
3	Lenovo	4,447	7.8%	4,054	7.7%	9.7%
4	Acer	3,418	6.0%	2,546	4.8%	34.3%
5	Toshiba	2,385	4.2%	1,982	3.7%	20.4%
	Others	27,168	47.6%	26,292	49.7%	3.3%
	All Vendors	57,052	100.0%	52,879	100.0%	7.9%

Notes:

• Shipments include shipments to distribution channels or end users. OEM sales are counted under the vendor/brand under which they are sold.
• PCs include Desktop, Notebook, Ultra Portable, and x86 Servers.
• PCs do not include handhelds. Data for all vendors are reported for calendar periods.

Source: IDC, October 18, 2006

Top 5 Vendors, U.S. PC Shipments, Third Quarter 2006 (Preliminary)

(Units Shipments are in thousands)

Rank	Vendor	Q3 '06 Shipments	Q3 '06 Share	Q3 '05 Shipments	Q3 '05 Share	Q3/Year Growth
1	Dell	5,258	31.0%	5,638	33.0%	-6.7%
2	HP	3,725	22.0%	3,486	20.4%	6.9%
3	Gateway	1,023	6.0%	1,020	6.0%	0.3%
4	Apple	975	5.8%	737	4.3%	32.3%
5	Toshiba	715	4.2%	664	3.9%	7.6%
	Others	5,260	31.0%	5,532	32.4%	-4.9%
	All Vendors	16,956	100.0%	17,077	100.0%	-0.7%

Notes:

• * IDC estimates for Gateway & Toshiba are prior to financial earnings reports.
• Shipments include shipments to distribution channels or end users. OEM sales are counted under the vendor/brand under which they are sold.
• PCs include Desktop, Notebook, Ultra Portable, and x86 Servers.
• PCs do not include handhelds. Data for all vendors are reported for calendar periods.

Source: IDC, October 18, 2006

IDC's Worldwide Quarterly PC Tracker gathers PC market data in 55 countries by vendor, form factor, brand, processor brand and speed, sales channel and user segment. The research includes historical and forecast trend analysis as well as price band and installed base data.

About IDC
IDC is the premier global market intelligence and advisory firm in the information technology and telecommunications industries. We analyze and predict technology trends so that our clients can make strategic, fact-based decisions on IT purchases and business strategy. Over 700 IDC analysts in 50 countries provide local expertise and insights on technology markets. Business executives and IT managers have relied for 40 years on our advice to make decisions that contribute to the success of their organizations.

IDC is a division of IDG, the world's leading technology media, research, and events company. Additional information can be found at http://www.idc.com

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