In the second part of an in-depth interview, Toshiba information systems division general manager, Mark Whittard, talks to ARN's NADIA CAMERON about which vendors will survive. He also shared his thoughts on how Dell's indirect strategy will affect the PC landscape.
We have seen a couple of vendors opt to get out of the Australian notebook market in recent times. Do you see more exiting?
Mark Whittard, Toshiba (MW): I expect we will see two or three more exit the market in the next two or three years.
Care to name names?
MW: You'd have to question those who aren't in the big end of town, the SMB space and in the retail space. The economies of scale come from being in all markets. It's those that sit out of the top six or seven worldwide. There's LG, Samsung, Fujitsu, NEC, although the latter two are still big in the Japanese market and there's probably enough there to keep them going. Sony is sitting on the fence, but then maybe it's a must-be market for them as they are in audio-visual and retail. I would say a couple of the big Korean vendors could get out as they have been posting losses recently.
The other thing is that it requires a reasonable investment to get into the Australian marketplace. Gateway made the decision to get out of Australia a few years ago for that reason. A few vendors are also candidates for takeovers and acquisitions.
Where does that leave the traditional whitebox market? Local builders are certainly not making any imprint on the notebook space. MW: No, they're not. It's much harder to build whitebox notebooks - the technology and tooling is difficult, and they're not generic like car parts. The second thing is, even in desktops, we're seeing less and less whitebox input. They just can't compete anymore. I've always said the big vendors would get big quick and stay there, and those on the cusp would have to get big or get out. And there's no longer that cheap, Taiwanese components market - firstly, because manufacturing has been moved to China and, secondly, because all those products are being consumed by the major vendors. Whitebox players can't compete with the economies of scale either because the margins have been squeezed so much between the brands and whitebox. A few years ago, the gap used to be $1000-$1500 in desktops. Now it's only $100-$200.
Also, customers no longer focus on speeds and feeds. It used to be that megahertz mattered and that's where whitebox manufacturers had a good chance. Now, whitebox builders are one step behind; they don't have the same software and other smarts as the branded vendors, and the price gap has shrunk. There have been a few "B brand" notebook manufacturers like Twin Head and Mitac, but they will get squeezed and have to drop out because they won't be able to compete.
Dell plans to expand from its direct model and engage the channel. How will that affect the PC landscape? MW: Going channel is probably going to help Dell a bit in SMB, where they don't get traction today because people can't go along and view their products. By going indirect, however, they will have to compete just like everybody else with a channel partner and have to support channel margins. I think that takes away Dell's only real significant advantage, which was price leadership. And in the notebook market, they haven't been price leaders for over 18 months anyway - Acer and the Compaq brand products have been fighting that out. Dell may have to come up with a whole new value proposition, because they don't have any other advantages that I'm aware of - they're not technology leaders, and they don't have any real time to market leadership now that all of the other vendors have caught up. The other advantage with the channel versus Dell is that you hold stock. I've always told our channel partners that if you're taking on Dell, the first thing you lead with to the customer is immediate delivery. So Dell will have to change its whole logistics infrastructure to match that. They'll also have to deal with paying business development funding to the channel partner for rebates and marketing to create demand. Then there's the whole issue around who gets the customer lead when Dell runs an ad.
I think they will find it difficult to get real support from partners because resellers will always be worried Dell will take the business away from them. Acer burnt itself in the past when it went direct for a while, which is why Harvey Norman disengaged, and you can't blame them. That's why I go back to our strength being consistency. Unless we're going to change the strategy long-term, there's no point changing if you see a bit of share going to someone direct. It's hard to buy loyalty with channel partners, but if you're consistently delivering and listening to their needs, they support you long-term. Nevertheless, Dell has to go channel and if I was in their shoes I would engage the channel. But they have a lot of work to do. It's like learning the business all over again.
Dell has earmarked discount retail chains as a key strategy in the US - would that be a way to differentiate itself locally? MW: Yes, they could. But unlike the US, local customers want to touch and feel the product and eyeball someone when they buy it. You don't get that from the discounters. In the American market, Dell rode on the back of the old catalogue market, where people sit indoors for six months because the weather is inclement. We've never had that culture in Australia. We still love to go out and shop, which is why Harvey Norman is so successful here.
There have been discounters around for a while and nothing's really taken off. Most of it is a short opportunity that's price driven. There's also the question of who services the product and who takes ownership. I'm not saying there isn't a place for them - we would certainly consider using them via our distribution partners from time to time to move product - but I don't see them taking serious market share from the retailers. The retailers are too well established.