Tight margins spur buyers market

Tight margins spur buyers market

Channel margin-slashing doesn't appear to have shaken investor interest in the PC industry, judging from responses to a "for sale" ad placed by a Queensland IT company.

The ad, which was placed in one national newspaper two weeks ago, drew 20 replies in just two days, including several from merchant banks, according to the technology broker overseeing the sale.

Ralph Hunt, a consultant working through chartered accountants Grant Thornton, declined to name the company looking for a buyer. He described it as PC-oriented with a "very large" Internet component, headquartered in Brisbane and turning over $8.7 million annually.

Hunt expressed surprise at the appearance of merchant banks among those responding to the ad. They may have been drawn by the poss- ibility of a management buyout or simply acting on behalf of clients, he suggested.

Queensland industry insiders have been quick to speculate on the identity of the anonymous company but none of the suggested candidates approached by ARN admitted to being on the sales block.

They include domestic manufacturers such as Source Technology and Western Computer who are both trying to cope with downward pricing pressure from the large brand names.

As IBM, Dell, and Compaq lead the way with lower entry level prices and direct sales, margins are being squeezed at every level of the supplier-to-reseller chain.

But, executives at Source and Western denied the big brand price cutting was having significant impact on their organisations.

They argued that sub-$2000 entry level machines have little appeal for organisations willing to pay a premium for higher levels of product reliability and performance plus service and support.

A bad move

On the other hand, anyone wanting to move into the reseller end of the market "would have to have their heads examined", according to Ray Shaw, head of the Intermedia group of distribution and retail businesses.

Shaw and other Acer distributors have been told they'd better learn to adjust their business models for even tighter margins, he said.

Bernie Tsai, Taiwan-based president of Aopen, Acer's components division, has said they will have to survive on gross margins of 2 to 5 per cent in future, instead of the 5 to 15 per cent they have been enjoying.

Combined with the double whammy of grey market and sales tax avoidance, ever shrinking margins make the future look grim for legitimate resellers, he said.

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