Dell (NASDAQ:DELL) is known primarily for its product line of desktop and notebook PCs, printers, and PC displays. Dell, currently the third largest PC vendor in the world, primarily competes with HP (NYSE:HPQ) and Acer (TPE:2353) at the top end of the PC market. 
We currently have a $19.25 Trefis price estimate for Dell’s stock, which is well ahead of market value. Notebooks & netbooks constitute nearly 18% of our estimated value while desktops contribute a mere 3%.
Over the past few years, Dell has lost notebook market share to more innovative and better priced HP and Acer notebooks. We project a gradual decline in the years ahead driven by the following factors.
1. Loss of Share to HP and Acer
Dell has lost significant market share in the notebook & netbook segment (18% in 2005 to 12.0% in 2009) to HP and Acer. Declines will likely continue going forward due to continuing competitive pressures, particularly in lower priced desktops and notebooks where competitors with well-recognized brand names (like HP, Acer etc.) offer aggressively priced products and more relevant feature sets.
2. Higher Average Prices for Dell Could Spell Additional Share Losses
Dell’s overall average selling prices have been higher than those of its competitors, which appears to be a conscious decision to realign its pricing strategy, concentrate on solution sales, and drive a better mix of products and services. The decision is hampering Dell’s top-line revenue growth, however, as consumers select more competitively priced Acer and HP products.
But Recent Sales Improvement Could Counter This Trend
Despite its recent loss of share to Acer and HP, Dell might be regaining its position. For Q3’10, Dell increased PC shipments by 9.3% over the same period last year (including notebooks, netbooks, and desktop computers) while HP’s sales declined by 0.2% and Acer’s by 0.7% over the same period. 
Among the top five manufacturers, Dell, Lenovo and Asus saw solid growth while HP and Acer dipped.
Potential Upside Scenario
We currently project declines for Dell’s share in notebook and netbook sales. However, if Dell is able to counter this forecast and continue its recent sales improvement trend, there could be a significant upside to the company’s stock value.
To highlight this sensitivity, we estimate that a 3% increase in Dell’s market share of notebooks & netbooks through our forecast period, vs. our current projection of a 1% decline, would generate 10% upside to the $19.25 Trefis price estimate for Dell’s stock.
However, competition stemming from the popularity of tablets (including Apple’s iPad) is a reason to be cautious regarding upside from increased PC shipments. We’ve previously discussed how tablets like Apple’s iPad have cannibalized notebook sales (See iPad’s Influence on Mac Notebook Pricing).
Disclosure: No position