Desktop Market Share Could Bolster Dell Stock

NEW YORK ( Trefis ) -- Dell ( 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 ( HPQ) and Acer 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. Desktops sales constitute roughly 3% of our estimated stock value (vs. notebook and netbook sales which represent a much more substantial 18%).

We recently discussed upside to Dell's stock value from increased notebook and netbook sales (See Dell Could Draw Upside from Notebook PC Market Share). Here we highlight the impact from potential stabilization in the company's desktop PC market share.

Desktop Market

Dell has also seen shaky market share in its desktop segment. We project a sharp decline in Dell's market share over the next few years from above 15% in 2010 to 11% by the end of our forecast period, and consider the following factors in our projections:

1. Increasing popularity of Apple's iMac desktop PC

Desktop sales increased in Oct 2010 for the first time in 24 months, through strong performance of Apple's ( AAPL) iMac line that has boosted year-over-year shipments by approximately 3%, compared to last year's 12% slippage. In 2010, Apple's iMac accounted for nearly 25% of the desktop market growth. Given the increasing popularity of iMac PC's in emerging countries and the launch of new and innovative products from Apple, Apple's iMac is expected to drive the growth (if any) in the worldwide desktop PC market going forward and increase its market share at the cost of other major players like Dell, HP etc.

2. Dell's competitors offer more attractive prices

Dell will face intense competitive pressure in the years ahead, particularly across lower priced desktops. We expect that Dell's competitors, which historically have offered better pricing than Dell, will continue to beat Dell on pricing and, correspondingly, erode Dell's market share.

PC Sales Improvement Could Present Upside for Dell

Despite its recent loss of share to Acer and HP, Dell might be regaining its position. As we've previously noted in our article emphasizing notebook and netbook trends, Dell increased Q3¿10 PC shipments by 9.3% over the same period last year while HP's sales declined by 0.2% and Acer's dropped 0.7%. These figures include desktop sales, in addition to notebook and netbook sales.

Corporate PC demand in the third quarter was particularly evident: desktop PC shipment sales rose sequentially by 11 percent in the third quarter, compared to only a 4.2 percent increase for notebooks according to iSuppli.

Among the top five manufacturers, Dell, Lenovo, and Asus saw solid growth while HP and Acer dipped. Dell's results illustrate its ability to capitalize on the corporate PC market refresh cycle.

If Dell is able to maintain constant market share in the desktop PC market, vs. our base projection of a 4.5% decline, it could generate nearly 5% upside to our price estimate. We note that this upside is limited as the company's stock value remains much more sensitive to notebook and netbook sales.

Our complete analysis of Dell's stock is here.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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