March 10, 1997 6:15 PM ET
Dell makes big waves in PC server pond
By Robert Lemos

  In the PC server market, Dell Computer Corp. may be a little fish in a $9 billion global pond, but the direct marketer's price-cutting strategy has been making big waves that are expected to ripple outward this year.

The biggest change: significantly lower prices in 1997 on PC servers, according to a report released by market researcher International Data Corp. In 1996, the cost of a single-processor PC server averaged $2,473, a decrease of 37 percent from 1995. The trend will continue this year, with the average single-processor server weighing in at around $1,700, a 31 percent decrease.

More than any other company, Dell drove the first round of price cuts.

"Because of Dell's direct-channel profile, they can pass savings on a lot faster," said Joe Loiselle, an analyst with IDC. "They were very aggressive."

Dell's competitively priced offerings allowed it to grab a 3.1 percent share of the PC server market in 1996 from Compaq Computer Corp., IBM and Hewlett-Packard Co. That share is expected to double in 1997, according to a separate IDC report.

Compared with the double-digit market share of the "big three" companies, Dell's gains may not appear significant. However, the Austin, Texas, company is shooting for the No. 4 slot this year and is increasing pressure in the low end of the market. That approach could spell success.

"A lot of first-time buyers just want to get a server in at a certain price point," said IDC's Loiselle.

The report also predicted price reductions for high-end PC servers. In 1997, both dual- and quad-processor systems are expected to feel the impact of competition at the low end of the spectrum. IDC expects average price reductions of 14.5 percent in the dual-processor market and 11.5 percent in the quad-processor market.

In the end, companies will benefit from the price decreases but will still make decisions on other factors.

"Price alone won't provide success," said Susan Frankle, research director of IDC's Commercial Systems and Servers program.

But it's a good start.

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