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Outlook for European PC merchants ‘generally grim’

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Analysis This article was first published in June 1998 So you thought times were tough? Not according to IDC, which says buoyant PC sales in Western Europe are prompting major PC vendors to redouble sales efforts in the territory. PC shipments in Western Europe will grow 14 per cent in 1998, but sales will rise only four per cent. This will help the big PC vendors to ride out poor sales in the crisis-hit Far East. IDC reckons the outlook for Western European vendors is 'generally grim, as witnessed by the recent fall of the long-established Dutch firm Tulip, the sale of Germany's Siemens Nixdorf PC manufacturing operation to Acer, and the slide experienced by Italy's Olivetti'. US vendors are not immune either. Last week, Unisys completed the handover of PC manufacturing to Hewlett Packard. But IDC makes a good point. As it says, the dynamics of the PC market in Western Europe have changed. Terry Ernest-Jones, senior consultant at IDC's European Personal Systems research group, comments: 'As typical business configurations for desktop and portable PCs fall further and faster in price, it is projected that the average lifespan of a business PC will shorten. So the frequency of upgrades and market growth will increase beyond levels previously expected. Lower entry-level pricing, improved product and support service packaging and more effective marketing will also encourage homes and small businesses to upgrade a little more frequently and purchase systems for new users. Sub-$700 PCs (including monitor) are already being advertised.' And just when you thought you had your logistics sorted out, Dell comes along and screws things up. Dell, the acknowledged master of the PC logistics game, says it will reduce inventory levels by half by the end of the year. The company says real-time information internet links with suppliers will enable it to cut inventory turns from eight days to as few as four or five. Dell will no longer have to anticipate demand - it can order components as and when it needs them. By increasing inventory turns, PC vendors are not left with old stock at a time of frequent falls in component prices. This enables the big guys to ratchet prices downwards and still make money. This, for example, is HP's stated goal for its PC manufacturing business - although recent results suggest there is some way to go before it pays off. But price-squeezing tactics like this will mean that fewer and fewer smaller OEMs can compete, and they will drop out of the market, reckons IDC. Some of these 'smaller' OEMs will be biggies. According to the estimable PC Europa, German retail giant Metro has put its computer businesses - Vobis, Maxdata and Peacock - up for sale, because it reckons the rules have changed on both distribution and manufacturing fronts. If you can't stand the heat - sell the kitchen. ®

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