The Dell business model of selling directly to the end user received a bit of a bruising in the third quarter of 2006 from Hewlett Packard, which for the first time since 2003 slipped into first place in worldwide PC shipments.

"The big question is would Dell consider resale in the US. They are actually in retail in some markets around the world like the Middle East and some other places where the direct model hasn't [caught on]," stated Bob O'Donnell, vice president, clients and displays at IDC.

One major reason for HP's success is its "aggressive" marketing and advertising strategy undertaken by its CEO Mark Hurd, observed Michelle Warren, an IT industry analyst with Partner Research.

Both Gartner and IDC both confirmed the end of Dell's dominant position in worldwide PC shipments in their latest quarterly reports.

In Q3 2006, HP led with 9,831,000 PCs, while Dell came in second place at 9,803,000, stated IDC.

Gartner's numbers for the same time period are roughly similar with HP leading at 9,652,000 and Dell following at 9,541,000.

The variance in the tracking figures stemmed from the reluctance of both HP and Dell to provide analysts with sufficient financial details on their shipments, explains O'Donnell.

"Neither Dell nor HP will give us an exact number; they provide guidance on how they've [done] relatively speaking. These are ballpark."

Furthermore, Gartner reported that Dell's shipments were down 16.1 per cent, its lowest year -over-year growth, even as worldwide PC shipments of 59.1- million units in the third quarter represented a 3.6 percent increase.

But it was in Dell's most important market, the U.S. where half of the company's PC products are shipped, that it experienced a surprising general volume decline of seven per cent, and double digit decline in desktops, IDC reported.

Both IDC and Gartner agreed that HP's new strength stemmed from its greater market share (compared to Dell) in markets outside the US and what both IT analyst firms describe as an upsurge in laptop sales to consumers via the retail stores in Q3 2006.

Because of conversations held with Dell representatives O'Donnell speculated that the company might loosen up a little bit by having some laptop models sold indirectly through selected retail outlets.

"[The people at Dell] are a lot less egotistical than they used to be. Before they didn't have to worry. Now, all of a sudden they are being seriously challenged."

O'Donnell stated he expected more of a tweaking of Dell's direct selling business model rather than any radical changes.

"It was very much against their religion to consider an alternative [to the direct model]. But I think the realities of what is going on in the market today, may well change that. So, I wouldn't be terribly surprised if we saw something like that evolve over time, in certain markets."

He pointed out that Dell PCs are already sold in some Costco stores "as an experiment" by the company.

"Everybody is looking at Dell like it is in a really bad position, and there are going to be a lot of problems. But Dell is really a successful company, [even with its present numbers], stated Mikako Kitagawa, principal analyst for Gartner Dataquest's client computing markets group.

At the same time, she cautioned that "there is a lot of room for HP to improve; Dell doesn't have space to grow."

Kitagawa noted that Dell is locked into a direct sales model that is dependent on volume enterprise upgrade sales which occurs every three or four years.

IT industry analyst Rob Enderle agreed, stating that HP has the advantage with its well established indirect retail channels where customers can examine and touch the laptops they want to purchase, much like how consumer electronics items are also bought.

Enderle adds the heretical notion within the industry that it may have been smart all along for HP to sell both direct and indirect.

"Sometimes it is better to have a flexible model, in other words, the capability of selling direct and through channels. If the one or the other surges you can ride with it. Dell being just direct, it becomes disadvantageous for them when retail surges."

Meanwhile, Warren Shiau, the Strategic Counsel's lead analyst for IT research, stated one cannot overlook how much Dell has ticked off customers in a number of areas.

"Dell's pricing strategy has not worked out as best as it could have. First there was the decision to shift up market to higher spec, higher price models. Then there was the issue of rebate/offer overload, making actual pricing somewhat confusing and rebates/offers becoming less effective."

One thing to watch is the future prospects of Kevin Rollins, president and CEO at Dell. Will he be blamed for the company's troubles and ultimately have to leave his position?

So far, principal shareholder Michael Dell has indicated a lot of confidence in Rollins, although "more extraordinary" developments might alter that, added O'Donnell.

"I still think [Dell's] future is relatively bright, and they have been doing relatively well in other regions. But the US is critical for them and it is clearly a wakeup to have this kind of situation happen."

Reprinted by permission of Integrated mar.com (integratedmar.com), EchannelLine © Copyright 2006 Integratedmar.com Corporation.