Nov. 20 (Bloomberg) -- Move over Best Buy. Wal-Mart will determine the fortunes of Dell Inc. and Hewlett-Packard Co. this holiday season.

The number of consumers planning to shop for electronics at Wal-Mart Stores Inc. rose 50 percent from a year ago, according to a survey this month by ChangeWave, a market researcher in Rockville, Maryland. At the same time, 14 percent fewer shoppers said they would go to Best Buy Co., the survey found.

Bargain hunters will rule this holiday season as consumers look for savings amid a global recession, squeezing margins on personal computers. Dell, which has trailed Hewlett-Packard in the PC market for the past two years, is trying to boost profitability after expanding into 15,000 retail outlets. While those stores bolster sales, average prices fell 8 percent in the third quarter, according to Sanford C. Bernstein & Co.

“Wal-Mart is going to cut prices deep, early in the holiday season,” said Edward Fox, director of the J.C. Penney Center for Retail Excellence at Southern Methodist University in Dallas. Wal-Mart may follow up with more price cuts, he said. “What kind of a bloodletting it is going to be depends on the consumer response to early discounts.”

Wal-Mart’s cheapest Dell machine, a Dell laptop with a 9- inch (22.9 centimeter) screen that comes with the Linux operating system, costs $348, according to the Walmart.com site. At a store in Norwalk, Connecticut, a $798 laptop was rolled back to $750 this week.

Store Delivery

“We’ve found that the introduction of Dell was very good for Walmart.com,” Raul Vazquez, chief executive officer of Wall- Mart’s online business, said in a telephone interview. “We’ve built a brand around saving customers money.”

Last year, Walmart.com began offering customers free shipping directly to their nearby store. The delivery program, called site-to-store, has saved customers $110 million, Vazquez said. He declined to say how much of that came from PC sales, saying only, “We’ve done very well with computers.”

People are favoring stores such as Wal-Mart and Costco Wholesale Corp. for electronics as they tighten budgets in the run-up to the holidays. Only 19 percent of respondents in a ChangeWave survey this month said they plan to spend more on electronics in the next 90 days, down from 39 percent a year earlier. The holiday season looks “extraordinarily dismal,” ChangeWave said.

Profit Decline

Dell, based in Round Rock, Texas, will probably report today that third-quarter profit dropped 17 percent to $635 million, according to the average of analysts’ estimates in a Bloomberg survey. Sales probably rose 4.6 percent to $16.4 billion, the slowest pace in five quarters.

Dell fell 20 cents to $10.15 at 9:30 a.m. New York time in Nasdaq Stock Market trading. The shares have lost 58 percent this year. Wal-Mart rose 76 cents to $51.76 on the New York Stock Exchange.

Last week, Best Buy cut its forecast because of a “seismic” slowdown in consumer spending. Susan Busch, a spokeswoman for the Richfield, Minnesota-based company, didn’t return a call seeking comment.

Dell is planning to sell products such as its Studio Hybrid desktop, an eco-friendly model that consumes about 70 percent less power than a typical desktop computer, through Wal-Mart, spokesman Bob Kaufman said. The company declined to comment on earnings or specific contracts with retailers.

Of consumers planning to buy a computer over the holidays, 37 percent said they would choose a Dell, according to ChangeWave’s November survey. That was an increase from 26 percent in September.

Squeezing Margins

Apple Inc. also showed an uptick in consumer interest, with one in three consumers saying they planned to buy a MacBook over the holidays, ChangeWave said. Best Buy benefits from that trend because unlike Wal-Mart, it stocks Apple computers.

The challenge is that retailers such as Wal-Mart may not help Dell improve its profit margins. Gross margin, or the percentage of revenue left after deducting the costs of production, will probably narrow to 17.9 percent in the third quarter from 18.5 percent a year earlier, according to Toni Sacconaghi, a Sanford C. Bernstein analyst in New York.

“The customer has told us they are a little more challenged,” said Gary Severson, Wal-Mart’s senior vice president of home entertainment. He declined to say whether Bentonville, Arkansas-based Wal-Mart asked suppliers such as Dell to cut prices. “I have no idea what Dell is making on the product Dell sells us,” he said.

Hewlett-Packard, based in Palo Alto, California, is also selling low-cost machines at Wal-Mart. A specially priced $298 Hewlett-Packard machine sold out in minutes when it debuted, said Alex Cook, Wal-Mart’s merchandising manager in charge of PCs. Hewlett-Packard this week posted fourth-quarter profit that topped analysts’ estimates as Chief Executive Officer Mark Hurd trimmed expenses.

Netbook Demand

Demand for netbooks, stripped-down computers that let people do basic functions like surfing the Internet, may also accelerate demand for low-cost PCs, said Henry King, an analyst at Goldman Sachs Group Inc. in Hong Kong.

“In difficult economic times, macaroni and cheese sales grow,” said Barry Jaruzelski, a technology analyst at consulting firm Booz & Co. in New York. “The question in electronics is, what is the equivalent of macaroni and cheese?”

To contact the reporter on this story: Melita Marie Garza in New York at mgarza4@bloomberg.net

Last Updated: November 20, 2008 09:34 EST