Who Won the Recession?

That was the goal, by the way, of several industry leaders throughout 2001 and 2002. Many figured if they could not increase shareholder value in a down stock market or hatch as many deals as they wanted, they would at least turn their attention to stealing share from competitors and pouring money into new product ideas that will bear fruit once the economy picks up. That's what both Cisco CEO John Chambers and Sun CEO Scott McNealy told VARBusiness they were going to do throughout the downturn.

So who won the recession?

Well, clearly Dell and Microsoft were the big winners (defined as those who gained market share at the expense of rivals, grew or maintained consistent revenue while avoiding costly charges and/or debt). There were some surprises, too. Take Progress Software, a Bedford, Mass.-based provider of e-business application development, deployment, integration and management software products. Several straight quarters of revenue growth and new products have this oft-overlooked company sitting pretty.

What about the losers? As evidenced by upheaval and misfortune, Gateway clearly lost ground. So did Novell and Qwest, just to name a few. What's interesting to note is that there really was a significant difference in how winning and losing companies performed. Put another way: Certain companies bucked the trend and succeeded despite what was going on in their sectors. Indeed, there were winners in almost every category.

In many instances, the strong companies got stronger, not surprisingly. But some upstarts made gains, too. Take DRAM chips, for example. Industry leader Samsung Electronics increased both its revenue and market share in 2002, according to preliminary figures from Gartner Dataquest. Gartner praises the company for maintaining profitability throughout the year. Meantime, the No. 2 and No. 3 players, Micron Technology and Hynix Semiconductor, lost ground, respectively. Interestingly, the market's No. 4 player, Infineon Technologies, and the No. 6 player, Nanya Technology, saw revenue climb 71.7 percent and 187.7 percent, respectively. According to Gartner Dataquest, Infineon broke through the 10 percent market share barrier for the first time in its history.

In PCs, Dell was the big winner. It made gains throughout the year. For the first nine months of 2002--year end numbers are not yet available--the company's sales were up 11 percent to $25.7 billion. Net income, moreover, was up 15 percent to $1.5 billion.

In terms of market share, Dell increased its lead in the United States in the third quarter over HP, while overtaking it in worldwide PC market share, according to Gartner Dataquest. In the worldwide market, Dell owns a slight advantage over HP in PC market share--15.8 to 15.7, respectively. Dell's gains aside, perhaps the second biggest success story in the worldwide PC market, at least as far as the latest figures are concerned, is Toshiba, which, in Q3 saw its share increase to 3.2 percent from 2.8 percent. While relatively modest compared with the bigger market players, the company's share is notable given Toshiba's previous problems, which lead to management upheaval and restructuring there.

On the downside, perhaps no company's fall from grace was as public as that of Gateway. Despite new ad campaigns and the return of founder Ted Waitt to the role of CEO two years ago, the company continues to stumble. On Jan. 8, for example, the company had to reset analysts' expectations when it announced that it would not meet its target revenue goal for the fourth quarter of $1.2 billion. Instead, the company announced, sales would most likely come in around $1.06 billion for the December period.

Although Gateway emulates Dell in many ways, Dell's success sets the company apart. The same is true in servers, too, where Dell has building momentum going for it. Although HP is still the worldwide leader by a significant margin over Dell (30.0 percent vs. 19.2, respectively), Dell again gained ground at HP's expense. Here in the United States, the gains are even more evident as Dell increased its Q3 market share to 26.3 percent from 23.3 percent, according to Gartner Dataquest. Those gains enabled Dell to eclipse HP as the top U.S. server supplier. Despite turning in a solid September quarter, HP saw its U.S. share of the server market slip to 25.9 percent from 29.2 percent.

In networking, Cisco continues to dominate, though its share price remains under pressure. Today, shares of Cisco, once the world's most valuable company, trade around $15 each, down from a year ago when they traded for around $20 each. Nonetheless, Cisco remains the leader in Ethernet switching revenue--it's 72.9 percent market share lead in Q3 was up nearly 10 percentage points over the previous year--and router revenue, too. In the third quarter, Cisco generated an estimated $278.1 million in router revenue, more than the nos. 2, 3 and 4 players in the market combined, according to Gartner Dataquest. That said, plucky 3Com showed strength, at least as far as Ethernet switches are concerned. In the third quarter, 3Com's growth actually outpaced that of Cisco, 27.5 percent to 17.4 percent, respectively.

In a recent VARBusiness interview, 3Com CEO Bruce Claflin said he expects his company to emerge as one of the winners of the recession. One reason: steep R&D investments, which should result in robust sales of new products in quarters to come.

As you rethink your vendor alliances in 2003, don't forget to consider how your favorites performed during the downturn. As the saying goes, any company can thrive in an up market where money is freely flowing. It's in down markets where companies distinguish themselves as survivors.