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Dell (NASDAQ:DELL) competes primarily with HP (NYSE:HPQ) and Acer for its PC business which includes desktops, notebooks and netbooks. We estimate desktops to constitute less than 2% of the $14 Trefis price estimate of Dell’s stock which is attributable in part to the diminishing prices of Dell desktops. We expect that Dell’s desktop pricing will reach below $200 by the end of our forecast period.
Declining Desktop Prices
Average pricing for Dell desktops has declined drastically from $917 in 2005 to $619 in 2009 as a result of growing competition from notebooks. Notebook PCs have become more affordable for consumers resulting in a shift in demand towards notebooks.
We believe the Dell’s average desktop price may reach below $200 by the end of the Trefis forecast period attributable to the following two factors:
1. Consumer’s preference for Notebooks over Desktops
With notebooks becoming more and more affordable, the desktop share of global PCs sold will decline. According to IDC, a market research firm tracking the PC industry, notebooks will be 75% of total PCs sold by 2014. As a result, PC makers like Dell will have to decrease desktop prices drastically in order to make them attractive to consumers.
2. Increasing competition from HP and Acer
Dell’s desktop market share declined from about 16% in 2005 to 15% in 2009 as a result of increasing competition from HP and Acer who have come up with more innovative and competitively priced desktops. For example, the Acer AspireRevo ultra-slim desktop is currently priced around $200.
In order to offset market share declines, Dell will have to move more aggressively in pricing. You can modify the Trefis forecast for Dell desktop pricing to see how Dell’s stock price could be impacted by faster pricing declines.
For additional analysis and forecasts, here is our complete model for Dell’s stock.