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Slumping Dell (Nasdaq: DELL) has lost the label of world's largest PC maker to rival Hewlett-Packard (NYSE: HPQ), according to two research firms, with HP grabbing the crown Dell wore for nearly three years.
Both Gartner (NYSE: IT) and IDC said HP pulled ahead of Dell in the third quarter, though both firms emphasize the gap was narrow, leaving open the possibility of the two companies trading the top spot, as they did repeatedly prior to 2003.
Overall Sales Down
The two firms also said PC sales 
growth had slowed in the quarter, from nearly 10 percent to 7 percent, according to Gartner, and 7.8 percent, according to IDC's figures. The U.S. market was particularly slow, with sales declining 2 percent over the year ago period, Gartner said.
Gartner's data shows HP leading Dell in terms of worldwide shipments by about 110,000 units, a tiny fraction of the 59.1 million units shipped during the quarter. IDC put the gap at about 28,000 units and said it considered the race for the top spot "a statistical tie."
The figures include about six weeks after Dell was forced to recall millions of notebook batteries made by Sony (NYSE: SNE). That recall has since grown to include several more PC makers and some 9 million batteries, but HP has said its own notebooks are not affected by the flaws that can lead to overheating problems.
HP, meanwhile, has had to deal with its own distractions in the form of a juicy boardroom spying scandal that has resulted in the resignations of three board members and several top executives.
Still, it was difficult to see either situation impacting sales data already and the shift is likely because of better execution from HP.
"HP continues to take better advantage of the faster growth segments such as the consumer market," said Gartner Principal Analyst Mikako Kitagawa. "The company's share trajectory reflects its improvements in operational execution and changes in marketing."
Dell once held a prohibitive advantage over most of its rivals because it had perfected the direct-sales model, streamlined its supply chain and whittled production costs far more than any other firm. That advantage has been eroded, as HP and others have made their own improvements.
Dell Tops in US
Gartner said HP had 15.4 percent growth to boost its market share to 16.3 percent, while Dell saw its lowest growth rates in several years, expanding shipments by just 3.6 percent as its market share fell to 16.1 percent. In fact, the overall PC industry outgrew Dell in most major markets, including the U.S. and Europe.
"Dell felt the effects of the weak sales in the U.S. market, and it gave up some ground," Kitagawa added. Still, Dell took home a consolation prize of sorts by remaining the top PC seller in the U.S. marketplace, with a 9 percentage point market share lead over HP.
The analyst said the weak performance of the U.S. market could be attributed to stronger second-quarter sales and less buying by businesses.
Behind HP and Dell were Lenovo, which got a boost from taking over IBM's (NYSE: IBM) PC line and had market share of 7.3 percent. Rounding out the list were Acer, with 4.7 percent and Toshiba, with 3.5 percent, according to Gartner.
IDC agreed that "slow growth in the U.S. pulled down overall results," said analyst Loren Loverde, who oversees that firm's Worldwide Quarterly PC Tracker study. The slowdown may continue into the fourth quarter, seasonally a big one for consumer PC sales, he added.
PC sales are being closely watched to judge the impact of the looming release of Windows Vista, Loverde continued. Holiday sales may be slowed by the fact that the platform will not be ready for shipment before the end of this year as consumers and businesses alike wait to upgrade. That delay also could be helping Apple (Nasdaq: AAPL), and IDC's data shows that Apple did make strides in the third quarter.
In the U.S., Apple ranked fourth according to IDC, with sales up 32 percent year-over-year, giving it a 5.8 percent share of the U.S. market. Internationally, sales were also up more than 30 percent in most regions, with the exception of Japan, Loverde noted.
"The growth is an excellent sign of the success of Apple's transition to Intel-based systems," he explained.
Microsoft (Nasdaq: MSFT) now says Vista will be widely released early in 2007.
Slower Growth Ahead?
One trend that did not change was the move toward mobile PCs, said IDC VP Bob O'Donnell. "In the U.S. market in particular, 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," he said.
There may be other signs of a slowdown in PC sales as well, including lower forecasts from the two largest chipmakers, Intel (Nasdaq: INTC) and AMD (NYSE: AMD). Both said margins shrunk in their latest financial reports, likely as a result of price cuts meant to help work down inventories.
Still, Loverde said PC makers are likely to counter any softness in the market or damage from the battery recalls with deep discounts and other enticing offers to avoid large inventory build-up at the end of the year and before the Vista release.
In particular, "Dell will be very aggressive in the fourth quarter," Loverde said. The recall and the wait for Vista "may cut into fourth quarter growth, but overall we don't see a broad threat to growth."
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