Dell Server Sales Take a Hit

Because of its aggressive pricing strategy, Dell is the leader in U.S. server shipments, but comes in fourth in revenues.

Despite an increase in server shipments, Dell Computer Corp.s quarterly revenues from U.S. server sales plunged 22.8 percent compared with a year earlier, marking the steepest decline among major computer makers, according to a new report by Gartner Dataquest.

Overall, first quarter revenues from U.S. server sales dipped 8.7 percent from the same period last year. Of the top-tier manufacturers, Sun Microsystems Inc. posted the best showing, squeezing out a slight 0.8 percent increase, while IBM kept its grip on the top spot despite a slight sales drop.

For the first three months of 2002, Dells U.S. sales totaled about $405 million, approximately $120 million less than it recorded for the same period last year, according to Gartner. The drop in revenue occurred despite a 16.5 percent increase in server shipments during the quarter.

The results underscore Dells continued aggressive pricing strategy tied to high-volume sales of low-cost servers. So while Dell has posted consistent increases in server shipments, revenues from sales of those systems have failed to keep pace. As a result, Dell was the clear leader in U.S. server shipments for the quarter, but ranked only fourth in revenues from those sales.

By contrast, high-end server vendor Sun sold only one-fourth as many units as Dell, but collected more than twice as much revenue. In particular, Dell garners much of its revenue from selling low-margin servers costing $2,000 to $4,000, while Sun sells several severs costing in excess of $400,000, with its top systems selling for several million dollars apiece.

IBM once again remained the largest seller of servers in the United States, despite a 4.5 percent decline in sales. For the quarter, IBM recorded $1.15 billion in sales, giving it 29.3 percent of the market. Sun ranks second in U.S. market share, with a 23.6 percent share.

Compaq Computer Corp., owner of the third-largest market share before Hewlett-Packard Co. acquired it, posted the second steepest drop in sales as its U.S. server revenues fell 17.3 percent to $493 million. The decline left it with a 13.9 percent market share, slightly ahead of Dells 12.2 percent share.

Compaq appeared to bear the brunt of uncertainty caused by its sale, as HP sales remained unchanged from a year earlier, coming in at $377 million. Together, HP and Compaq would still rank third in overall U.S. market share, although their merger dramatically closes the gap between HP and Sun.

Total U.S. server revenues came in at $3.92 billion, a nearly 9 percent decline from a year earlier, reflecting the continued effects of a weak economy and the dot-com collapse that hammered high-tech sales.

Quarterly earnings reports today from HP and from Dell on Thursday could offer insight into whether the long-struggling server industry yet sees any indications of a hoped-for turnaround starting in the second half of this year.

Server revenue

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