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Tickers in this Article: HPQ, DELL, INTC, AMD, MSFT, IBM
In the ongoing slugfest for dominance of the personal computer market, veteran Hewlett-Packard (HPQ) managed to score enough points in the latest round to be declared the clear winner over arch-rival Dell (DELL).

HP's latest quarterly results showed the company continuing to make significant market share gains, as a 17% rise in personal computer related revenues led the company to a consensus-beating 11% year-over-year gain in total revenues and a 35% jump in earnings per share.

Encouraged by such a strong showing, management upped their guidance for fiscal 2007, raising revenue forecasts to $98.0-99.0 billion, a 7-8% year-over-year rise, and predicted earnings per share would reach $2.60-2.65, an increase of 11% from last year.

In contrast to HP's positive report, the buzz on Dell's next quarterly release (due March 1) is decidedly less upbeat.

Consensus estimates are now calling for Dell to earn only 29 cents a share for the period, or 32% less than the 43 cents a share in profit the company reported in the year-ago quarter.

Sales are also expected to drop 2%, to $14.9 billion from last year's $15.2 billion.

And things could get even worse. A recent heads-up from the company has warned investors to expect results below the consensus.

So what's behind these dramatically divergent results in the same industry and product market?

It all has to do with each company's choice of sales channel. For HP, the right choice was to continue its push into the retail channel as that model is more profitable than selling directly to consumers due to the dramatic difference in order sizes.

This was a particularly astute move in light of the significant declines in price at the retail level which helped neutralize the price advantage associated with Dell's direct-sales approach.

These price cuts have largely been the result of the ongoing microprocessor battle between Intel (INTC) and Advanced Micro Devices (AMD) which has helped reduce component costs to a final product manufacturer like HP.

Looking ahead, while the roll-out Microsoft's (MSFT) Vista operating system will likely proceed at a slower pace than planned, it should eventually slow the rate of PC price declines as Vista-capable machines will likely command a price premium, helping improve HP's margins further.

Given HP's success in the retail channel, it was no surprise when Dell management announced that it was open to "experimentation" with respect to is 23-year old policy of selling direct to customers.

Although the company stopped short of saying it planned to open its own branded stores, or sell through established electronics retailers, it said it would do what it takes to reach consumers with its products.

Such a move could eventually redress the imbalance in the personal computer war with HP, and possibly put a crimp on HP's profit growth going forward.

However, we may not have to wait for Dell to pick itself up off the canvas before HP faces a new competitive challenge coming from another corner.

Recently, the world's number three computer maker Lenovo Group announced that it would slash more than 1,000 jobs in a effort to cut costs and reshape the PC unit it bought from International Business Machines (IBM) in 2005. The goal is to make the unit fighting fit and ready to grab its own share of the North American personal computer market.

Quite simply, such a ramp up the level of competition could spell the end of good times in this business.

Profits could dive if a change in the competitive landscape happens to coincide with a meaningful slump in consumer demand; something which cannot be ruled out as the full impact of the housing slump has yet to run its course through the broader economy.

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