Dell, Gateway biz models to face shortage crunch

Compaq, HP, IBM to benefit

Another report from FHI Research has indicated that changes in the global market mean that direct sellers of PCs, including Dell, Gateway and Micron, are likely to suffer in the rapidly growing Asian market, while IBM, HP and Compaq will mop up in their wake.

The advisory notes that while Dell, Gateway and Micron have led in the direct business in the US, the success they have had in North America cannot be replicated in the fastest growing market for PCs, which is the Asian market.

The report says that the direct, build to order model, is "uniquely vulnerable" to supply shortages, disruptions and supplier price increases. However, Compaq, IBM and HP, each of which has preserved an indirect route to market and a build to inventory method, are likely to see strong and profitable growth unsurpassed in the last three years.

FHI Research claims that direct vendors wish the market to believe that their business model is applicable worldwide. And, while Dell is the most successful of the direct, build to order vendors, it alone has the financial strength and resources to make its business model work.

While Dell said in its most recent results that first quarter sales in Asia-Pacific and Japan had risen by 47 per cent, FHI claims that "the apparently impressive performance...in Asia-Pacific and Japan resulted in only a one per cent increase in total sales revenues from seven to eight per cent." FHI also claims that its European sales, measured in dollars, declined two per cent, quarter on quarter, year on year.

IDC figures show that total regional sales in this area grew by more than 43 per cent, amounting to 4.24 million units in the first quarter of this year. The growth in these Asian markets mean that Dell should have grown by 100 to 200 per cent during this period. Gateway and Micron, too, failed to make a breakthrough, the report claims.

The report says: "Far from things going well for Dell and Gateway, the data shows that their effort to penetrate international markets have been less than a total success. The inability of the direct, build-to-order model to successfully penetrate the fast growing Asian and European market have serious implications".

To penetrate the biggest growing markets, Dell will need to build a better infrastructure in both Asia and Europe, which will be time consuming and expensive, FHI says.

The current famine in components will have a negative effect on Dell, Gateway and Micron's supply chains, claims FHI Research, which will lead to spot shortages and "substantial price increases which they cannot necessarily absorb by tried and true techniques like stockpiling parts and building inventory".

Those factors mean that Compaq, HP and IBM, which have maintained such models, have a real chance to capitalise on the lucrative Asian and European markets, the report concludes. ®

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