Not a bad six weeks for direct sales computer maker Dell(Nasdaq: DELL) , the computer company that lost about $17 billion of market value after a January 26 earnings warning.
Since closing at a low around $35 9/16 February 9, the Round Rock, Texas company is up an amazing 50% to about $53 7/16. It's up $3 today in early trading after a PaineWebber analyst upgraded the stock. Earlier this week, two other analysts maintained "near-term buy" and "strong buy" recommendations.
So much for dire predictions about the health of the PC industry. Turns out Dell's Q4 shortfall, brought on by a shortage of semiconductor components and delayed purchases due to Y2K issues, was just a bump in the road. The company said as much.
Most buy-and-hold investors knew it -- even as the media pounded a lineup of usual suspects to make a case against Dell: slower PC growth, falling PCs prices, market saturation.
The problem, for starters, is that growth in the PC industry this year only looks slow compared to last year. Consider the numbers, courtesy of market research firm International Data Corp.: Worldwide PC shipments should grow 18% in 2000, down from 23% last year. But growth in 1999 was abnormally high as first-time computer buyers flocked to stores to buy cheaper PCs, said John Brown, IDC's director of research. The lesson here is that investors need more than a two-year comparison base to get a feel for PC trends.
Brown sees growth returning to normal this year. The expected 18% in 2000 is up very nicely from 13% in 1998. In addition, price points are expected to stabilize, which should take some pressure off manufacturers' margins. Interestingly, Brown says both the sub-$1,000 PC category and traditional, higher-cost PC categories are growing at a healthy clip, which is important since it indicates that cheaper PCs are adding to overall PC sales, not cannibalizing existing growth.
Some segments of the market are slowing, of course, and it's worth putting these in the hopper. For example, U.S. PC shipments into the home will slow to about 7% this year, down from a nutty 43% gain last year and down from an 11% advance in 1998.
Worldwide PC shipments to homes, however, are growing quickly. Brown sees deliveries growing 18% in 2000, down from 45% last year but up from 13% in 1998.
As far as marketshare, most investors know Dell seized the U.S. crown last year, grabbing 17% of total worldwide PC shipments. Compaq(NYSE: CPQ) came in number two with 16%. In worldwide shipments, Compaq is still king with 14% market share compared to Dell's 11%.
The top five U.S. computer makers control 58% of the U.S. Market. The major players are Dell, Compaq, Gateway(NYSE: GTW) , Hewlett-Packard(NYSE: HWP) , and IBM(NYSE: IBM) .
The five top players account for just 45% of worldwide PC sales, however, and there's a lot of headroom in markets such as Asia and Latin America, where PC penetration is weak. IDC expects Q1 PC shipments in the Asia/Pacific region and Japan to grow 32%.
Sure, Dell's growth rate is slowing. Michael Dell, Dell's chairman and chief executive, used the fourth-quarter hiccup to scale back growth estimates. It makes sense to expect less spectacular growth from Dell now that it's a $25 billion company, but no PC hardware company is in a better position to capture growth worldwide.
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