Now we know why


(DELL) - Get Report


Perot Systems



weak third-quarter numbers

show that the No. 3 computer maker has been watching helplessly as rivals


(HPQ) - Get Report



(AAPL) - Get Report



enjoy the benefits of an emerging PC recovery.

At least the $3.9 billion acquisition of Perot gives Dell a new market -- IT services -- to help offset the pain in PCs.

Not only were Dell's earnings, sales and gross margin numbers disappointing; the bigger picture wasn't all too bright. Supplies piled up as consumers and businesses shopped elsewhere for PCs.

"The combination of rising total inventories and lost market share in PCs is not likely to sit well with investors, writes JPMorgan analyst Mark Moskowitz in a note Friday.

On a conference call with analysts, Dell said 80% of its business was with commercial buyers, which helps explain how consumer favorites like Apple and H-P may have seen stronger demand than Dell.

And while consumers were avoiding Dell, the biggest portion of Dell's customers -- schools, businesses, government and other large organizations -- have been reluctant to spend.

CEO Michael Dell told analysts on the call that there were signs that the spending trend may be improving.

"If I look at our commercial businesses, the second quarter was kind of a bottom," Dell said. "The third quarter was certainly better. October was the best and November will be better than October."

Let's hope so for Dell's sake.

Hoping to bolster the PC and server business, Dell says it added Perot Systems IT services numbers to its books starting this month.

But Dell is late to follow H-P into the services game, and it is somewhat outgunned in this arena by giants like


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(IBM) - Get Report


It won't be an easy road for Dell, writes Thomas Weisel analyst Doug Reid in a research report Friday.

"We believe that Dell faces a growing long term competitive threat from H-P, IBM and Cisco," writes Reid.

Dell fell $1.44, or 9% to $14.44 in recent trading Friday.


Written by Scott Moritz in New York