Will Acer's Entry Into Servers Put Dell at Risk?

| About: Dell Inc. (DELL)

During the last quarter of 2009, Acer, a Taiwanese PC manufacturer, replaced Dell (NASDAQ:DELL) as the #2 player in the global PC market after HP (NYSE:HPQ). Acer was able to grab share from Dell due to strong sales of Aspire One, a low-cost netbook targeted at consumers. Now Acer is entering the lucrative server market where we believe it will face greater hurdles and will not be a significant threat to Dell’s server business. We estimate that Dell’s server business constitutes about 13% of the $14 Trefis price estimate for Dell’s stock.

In addition to competing with Dell, which has about 12.5% server market share, Acer will now be in competition with server leaders IBM (NYSE: IBM) (33% share) and HP (NYSE: HPQ) (30% share). Compared to Acer’s market share gains in the consumer PC market, we believe it will be tougher for Acer to cut into Dell’s share in the commercial server segment.

Below we highlight the three main reasons why Acer poses less of a threat to Dell’s server business compared to its PC business and why Dell server shipments are expected to grow.

1. Dell’s PowerEdge Servers Are Better Than Acer’s Altos Servers

Dell has been prompt in upgrading its x86 server line software with Intel’s latest six-core Xeon 5600 processors that promises 60% higher performance and 30% power saving over the previous generation processors. In comparison, Acer’s high-end servers are still on quad core Xeon processors and AMD’s previous generation Opterons, which are less powerful compared to the Xeon 5600 series.

2. Unlike Consumers, Businesses More Focused on Performance and Services Over Price

Acer’s high growth numbers for 2009 can be attributed to the popularity of low-priced netbooks among consumers who were looking for cheaper alternatives. In comparison, businesses are more focused on overall performance and the total costs associated with purchasing and maintaining the servers.

Dell offers high-performance servers as well as data center management services like support and maintenance to its clients. Such services are attractive to companies that want to avoid additional IT investments in order to maintain their servers. Acer will need to build up these services to capture more business customers.

3. Dell Has a Wider Distribution Network Than Acer

Dell has a strong distribution network, giving it an upper hand over Acer to capitalize on the resumed IT spending from enterprises. Acer will have to invest significantly in building a strong and competitive network to reach enterprise customers in order to sustain competition with HP, IBM and Dell.

Dell Server Shipments Expected To Grow Moderately

We believe that improving economic conditions will spur additional IT spending by businesses and that Dell’s server shipments will benefit as a result. We estimate Dell’s server units sold will reach 1.8 million by the end of the Trefis forecast period.

However, in contrast to our expectations, you can modify our forecast above to see how the Trefis estimate for Dell’s stock would be impacted if Dell’s server shipments were to decline in the future as a result of competition from Acer.

For additional analysis, here is our complete model for Dell’s stock.

Disclosure: No positions

About this article:

Tagged: , Personal Computers
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here