When Hallmark Computer International was founded in 1992, it was purely a distribution business selling a range of peripherals, monitors, cases and motherboards, but the company quickly discovered that there was also room for another white box OEM assembler in a crowded but growing market.
The early 1990s were the IT industry’s heady days when millions of home and business consumers were awakening to the benefits a PC could introduce. As a fledgling company, Hallmark turned over $17 million in its first year of business with a staff of about six or seven people according to current general manger, Michael Ly, who was there at the beginning.
The company was started by two university-trained Chinese nationals who had migrated to Australia — Trevor Yuen, who had graduated as a computer scientist, and Edward Ho, a qualified electrical engineer. Both these founders are no longer involved in the day-to-day running of the business according to Ly.
Yuen sold out his stake at the beginning of this year while Ho has stepped back recently to concentrate on other business opportunities.
The compnay director is now listed as Miss Jin Ho but Ly said the business is still owned by Edward Ho and his family. He said that today Ho limits his involvement to negotiating with suppliers.
In the 11 years since foundation, Hallmark has grown to the point where it now employs more than 100 people across its Melbourne headquarters and four branch offices. In 2002, the company assembled and sold more than 20,000 desktop and server units. Revenues for the just completed 2002-2003 financial year were in excess of $53 million and resulted in a retained profit of more than $4 million, Ly said.
He expects revenues to continue growing at a double-digit rate to more than $60 million during the current financial year.
The business is now a 60-40 split between distribution and what Ly describes as “value-add”. This includes mostly the assembly, configuration and distribution of desktop PCs and servers but there is also a growing component of service revenues.
Vendors that Hallmark currently distributes for include Intel, Microsoft, Gigabyte, Seagate, Sony, Canon, Panasonic, Adaptec, Belkin, Gainward, Fortinet, Eurologic, Dynalink, Cnet and Viewmaster (which is its own home brand).
“Having the distribution business is very important to improving the margins of the value-added business,” Ly said. “Selling PCs is a very competitive and cut-throat business and having distribution agencies allows us to get better prices on the components which in turn improves our margins on the value-add side of Hallmark.”
There have been many milestones for the company since it began operations including vendor relationships, accreditations, government contracts and expansions. In 1995, Hallmark was one of the first companies in the local assembly industry to attain ISO 9002 quality endorsement. This “helped business tremendously”, according to Ly.
“We were selling into corporate and government space and often they would say that you had to be quality assured or they would just not deal with you,” he said.
In 1995, the company also began a close association with Gigabyte began. This has blossomed over the years to the point where Hallmark now sub-lets space in its Springvale premises for the Singapore-based company to run its Australian warranty centre. Other vendor relationships that have been vital to the success of Hallmark include those with Intel and Microsoft.
Hallmark had sold Intel products from the beginning but became closely aligned in 1999 when it was awarded the coveted Intel Validated Sever Assembly Centre status. There are only three of these in Australia. The partnership firmed further with its appointment — in 2000 — as a member of the exclusive Intel Premium Provider partner team.
“Intel is a very strong vendor relationship for us,” Ly said. “Before they appointed us to these, we had to go through a lot of rigorous testing and quality assurance assessment to make sure we had the capacity and ability to deliver products to their standards.
“The other significant vendor relationship we have is with Microsoft. We became a Microsoft direct OEM account in 2000 and that was a significant boost for the business as well. Our close relationships with Intel and Microsoft help Hallmark to be recognised as a serious and quality OEM player in this country.”
Very early in the history of the company, Hallmark recognised that it had to be a national player that encouraged it to open branch offices. Interestingly, its first expansion away from the Melbourne home was to Adelaide in 1994 and not Sydney which was not opened until 1997.
Between these two branch openings, the Adelaide manager identified an opportunity in supplying to the Northern Territory Government. The company also has a branch in Perth that opened in 2000.
Hallmark invested heavily in Darwin and it is now the company’s second largest operation after Melbourne.
“We were awarded a five-year contract under CSC’s [Northern Territory] whole-of-government outsourcing deal,” Ly said. “We had to build a new production facility up there and we now employ 22 people in Darwin. It is our second biggest operation after Melbourne.”
Ly attributes much of Hallmark’s success over the years to its basic philosophy of “supplying consistent quality, service and value” to suppliers and customers.
He also said that its low overhead business model and the economies of scale it achieved by having distribution agreements with some of its suppliers allowed it to match the market. “Of course, price is not everything but we have to be competitive,” he said.
Looking forward, Ly was very positive about the future of Hallmark. He saw great opportunity for the company in its Intel partnership and said there were plans to expand the server sales substantially.
“The scope for servers is enormous,” he said. “At the end of the day our servers are Intel validated and this gives them enormous credibility. Why do end-users need to buy tier one brands and pay a 30-40 per cent premium when Intel are accrediting ours and everything is virtually the same.
“We will invest a lot of energy and resources in this area to get a larger market share. Hallmark retains the same value propositions it offers over international brands in the desktop PC space — quality, flexibility, value and service. It is a rapidly growing part of the business for us and we are starting to look at storage solutions as well.”
Meanwhile, he sees great possibilities in developing the relationships Hallmark has with suppliers, particularly in the LCD monitor space as this commoditises.
“Our LCD monitor supplier is the largest in the world and we have a very good relationship with them,” Ly said. “I think we can do a lot more there and with all of our direct manufacturers which will help grow the business.”
Ly said the only menace to Hallmark and other players in the local assembly industry was the penchant for tier-one brands to “buy business” through price cutting.
“There is a lot of it going on at the moment,” he said. “It is only a short term solution for [the international brands] but it has been a concerted attack.
These larger companies have the resources to acquire market share but we have withstood so far and have the underlying fundamental business strengths to ride out the short-term pain.”
There have been several great stimuli to business over the years. They include technologies such as the Windows 95 operating system and Intel Pentium processors and both Y2K and the introduction of GST greatly boosted business.
“The Y2K and GST booms were great for business but they were also followed by slowdowns,” Ly said. “There was a lot of panic buying and a lot of demand had been brought forward. Hallmark’s revenues definitely spiked up during this period but once it had passed there was a drop-off. It took six months before the revenues stabilised.
After these high-points, there was controversy when Edward Ho was jailed for two-and-a-half years after being found guilty of defrauding the Commonwealth having evaded paying a total of $184,686 in tax.
According to Ly this “did affect some of our business dealings” but Hallmark has “moved on from that” and has “become a stronger player” as a result.
“It forced some change in the way we were doing business but we have remained strong and focused on our business objectives,” he said. “If anything it proved that the company was bigger than just one of its directors and that has to be a good thing.”