Strange: As orders piled up, Dell lost leadership

The battle for PC market has reached a feverish pitch in India. It was only three quarters back that Dell had unseated Hewlett Packard (HP) from its leadership position in the desktop and laptop segment, and in the October-December quarter the Texas-based PC maker has lost it back to its rival.

But it is not just HP, which has nibbled into Dell’s share. Chinese PC maker Lenovo has also bitten off its share in the enterprise segment and reached the top with a share of 33.7%.

Dell’s enterprise sales in the last quarter slipped 34% sequentially pinning its share down to 22.5% while that of Lenovo climbed 17%.

However, if you look at Dell’s revenue growth in India last quarter, it’s not bad. It grew by 37% indicating that India was still one of the fastest growing markets for it but other players are also racing as fast.

So, what really went wrong with Dell’s India story?

Industry insiders say there are more than one reasons for the decline in Dell’s market share in India.

Of them, the major one was order backlog due to logistic problems at Dell’s Chennai factory. A senior executive with Dell, who spoke on condition of anonymity, said while there was an opportunity to flood the market with Dell PCs last quarter, they could not do so because they were short of capacity.

“Last quarter was plagued with delays of more than two months because of the problems at the Chennai plant. We are now considering setting up a new plant at Chennai or expanding capacity at the existing facility,” he said.

At another level, Dell’s pursuit to grab a higher share of the high-margin PC segment has also been at the cost of losing share in the low-margin PC segment.

“Dell is definitely not going after volume share. It is chasing margin share in the PC market. We want to establish our presence in the high-end segment like Apple, where the customers are ready to pay any price for your device. The company is slowly increasing its share in that segment. Such a strategic shift will see some short-term disruptions in the business but it will stabilise in a few quarters. This happened in the US, it will happen in India too,” said the Dell executive.

Typically, PCs in the price range of Rs32,000-35,000 earn a margin of about 5% while laptops costing Rs60,000 and above have a margin of over 18%.

But an HP executive, who also did not want to be named, said Dell lost the battle of market share because HP had drawn up a plan to regain its position and had aggressively followed it through.

“After a period of leadership crisis within the organisation, HP has got its act together over the last one year. We have a new channel strategy that has started to work for us. If you remember, Dell had attacked us where we were strong — small and medium business (SMB) segment — to topple us. We adopted the same strategy and re-established our dominance in the SMB segment,” said the HP executive.

He said it was not that Dell became weaker but HP grew stronger with staff transition and product portfolio rationalisation, where it focused more on Intel-based systems than devices based on AMD.

According to technology research firm IDC, in December quarter HP regained the market leadership in the overall PC — desktop and laptop — market with a 17.3% market share while Dell slipped to second position with 14.2% market share.

Dell’s share in both desktop and laptop dwindled as HP expanded its share in these segments.

And so, as HP and Dell fought on the consumer and SMB turf, Lenovo has quietly consolidated its position in the enterprise segment, where it has zipped ahead of Dell with a massive lead in the December quarter. In this segment, HP is behind HCL at fourth position with a 13.3% share.

Rahul Agarwal, executive director, commercial business, Lenovo India, said the Chinese company was able to overthrow Dell from its top position by aggressively going after new enterprise customers.

“It’s (becoming No. 1 player in enterprise segment) not happened in a single quarter. Last few quarters, we have consistently grown to become No.1 today. We have done that focusing on new account (customer) acquisition,” said Agarwal.

In the December quarter, 14-15% of Lenovo’s business came from new accounts. Of this, a large part of the growth came from very large enterprises (VLEs), which have more than 1000 employees. Lenovo added 50 new VLEs in the last quarter.
Agarwal said the enterprise segment has been registering very fast growth on system revamp and fresh hiring after the recession over the last one year.