Who says PC industry optimism is sky high?
Deloitte and Touche findings are misplaced
Opinion This article was first published in April 1999 Roldec has been a victim of its own success. The former high-flying Wolverhampton system builder - twice featured in the Sunday Times Top 100 list of fastest growing UK companies - crashed with £2.5 million debts. Not bad for a company turning over less than £12 million a year. An awful lot of distributors and vendors are going to get their fingers burnt on this one, especially as it comes so soon after the Memsolve debacle, which crashed owing £4 million. Trade Indemnity, the credit insurer, can't be too happy either. In the best case scenario, insurance premiums will jump; in the worst, insurance protection will be withdrawn from vendors thought to be too free and easy with their credit. Either way, credit will tighten this year. And that means more low-margin dealers and system builders will take a tumble. Which brings me to accountancy firm Deloitte & Touche (D&T). According to its US consultancy arm, short-term optimism for the PC industry is at a five-year high. It also tells us customers hold the power, which is enough to make any self-respecting PC builder feel very miserable indeed. Basing its analysis on 1998's fourth quarter, D&T pronounces the biggest winners to be companies that can come up with unique sales and margin strategies. Take a look at IBM, a company more capable than most of deploying unique sales and margin strategies. As a vendor that builds its own parts - CPUs, storage and the like - it is (with the possible exception of Packard Bell/Nec) the most vertically integrated PC vendor of the lot. It's big, it's powerful - and its channel-friendly PC business lost $1 billion last year. Bad news for IBM's personal systems division is bad news for IBM resellers, distributors and its channel assemblers, but very good news for Dell. No wonder IBM is cosying up to Dell, with its $16 billion purchasing pact. The direct vendor can soak up IBM components and make much more use of its profitable services division than IBM's channel dependent PC operations can. So what was D&T saying about optimism again? "Our PC report indicates that the market is optimistic about the future of the industry,' said Charles Goldenberg, partner in Deloitte Consulting's High Technology Group in San Francisco, California. 'Despite recent announcements that selected PC makers' shipments are decreasing, business and consumer PC buyers alike are bullish about new technologies," he added. But Goldenberg had bad news for manufacturers. He said vendors must be more aggressive in finding ways to cut costs in preparation for the next threshold of price declines - the sub-$500 PC. And these methods included using less expensive materials, lower manufacturing costs and economies of scale. And this means more system builders will go bust. Short-term optimism? I don't think so. ®