Local hardware manufacturer, Optima, has attributed an 84.9 per cent drop in half-yearly profits to the loss of lucrative NSW government business.
It reported revenue of $55.5 million in its six months to December, down 1.1 per cent from that recorded in the same period of 2003. Net profit was the worst performer, falling from $1.3 million to $198,000.
Managing director, Cornel Ung, said the loss of PC sales to the public education sector was the major catalyst for the disappointing results.
As reported in ARN, Optima was forced to cut staff and shift its education focus onto the independent and private schools market after the NSW Department of Education and Training (DET) decided to centralise all of its PC procurement contracts. The change became evident in its most recent $544 million PC rollout, when the agency opted to allocate how many PCs vendors would provide, instead of allowing each school to choose their preferred supplier.
Ung said Optima had been able to gain a large portion of NSW DET contracts because it worked with schools at an individual level.
In contrast, the centralised policy saw IBM pick up the largest allotment of PCs in the first stage of the three-year tender.
But despite the effect the shift had made on its bottom line last year, Ung was optimistic about its ongoing business with the DET.
"We expect to see unit shipments grow this year," Ung said. "The overall market is very competitive - but with the DET favouring local services, we can maintain growth in this sector. We have to build solutions around DET requirements. There's also an opportunity for us in the procurement part of these contracts and government outsourcing."
The vendor was also putting more focus on its recently launched CE division, releasing new product lines to help boost its overall profit.
"We only have three products in our CE business at the moment - the new product lines will increase our revenue," he said.
Ung also highlighted management changes - including the November departures of CEO, Douglas Wong, and channel manager, Michael Calculli - as disruptive factors.
However, he admitted PC hardware pricing continued to be very sensitive across the retail market, making it harder for assemblers to grow their profit margins.
"If we want to maintain growth in this sector, we have to compete with prices," he said.
Gartner hardware analyst, Andy Woo, said all local PC vendors needed to guarantee that they were competitive not only at a pricing level, but also from a logistics and procurement perspective.
"Are they finding it tough? Absolutely," he said. "Margins are very thin. PC makers need to make sure all engines are running smoothly - not just demand, but internally."
In addition, local manufacturers should pick their market sector carefully, Woo said.
"You can't be everything to everybody," he said. "For example, if you are in the consumer market, channel your resources into that market. Local vendors don't have the cash flow of HP, IBM or Dell."