Y2K: gloomy channel
Its been a bit a gloomy time in the UK reseller channel this past few months, mainly because of increasing reports that major companies have either drastically reduced or frozen their PC purchase budgets in the face of the Year 2000 (Y2K) IT problem.
These fears have now come to be realised (see Context's Q3 figures detailed below), but the effects of the cutbacks in corporate channels may be offset by a general sales buoyancy in the retail and consumer sector.
This is despite the effect of the 10 and 20 per cent price rises that have occurred in the last few months in the wake of the massive price increases on memory chips.
So, there may be light at the end of the tunnel. The fact that PC prices are rising steadily at the moment means that dealers have a chance of returning profit margin levels to the same level as they were a year ago.
Perhaps normality will now return to the PC reseller channel.
UK PC market healthy says Context
Preliminary figures released for the UK by Context, the computer research company, show that sales of PCs through retailers and dealers grew by 19 per cent during the third quarter of this year when compared to the same period last year.
But, while overall growth was good, Context claims that sales of desktop PCs through corporate resellers showed a decline for the quarter of 13 per cent - reflecting the impact of the Y2K problem on buyers in large companies.
"As well as the drop off in unit sales of desktops to medium and large companies during the quarter, portable PCs showed a similar trend falling by eight per cent," said Jeremy Davies, Context's senior partner.
"Sales of PC servers to these same buyers, however, are picking up and grew by 10 per cent," he said, adding that what is interesting is that the companies are probably now beginning to see the effect of the Y2K problem on PC purchases by corporate buyers.
According to Davies, companies have either completed their buying plans for 1999 or are deferring until next year.
Context's figures show the sales of PCs by the indirect channels of distribution used by major vendors such as Compaq, IBM and HP. Corporate resellers saw their overall performance for Q3 1999 fall by 11 per cent compared to the same period last year.
Retailers, meanwhile, saw their overall unit sales increase for the quarter by 35 per cent, while other dealers did even better with an overall growth of 46 per cent for the period.
According to Davies, back to school sales and small business purchases accounted for the majority of the activity in the retail and small dealer sector.
"For these buyers, Y2K is not nearly the same issue it is with the larger companies and is having far less impact on sales," he explained.
Context reports that a notable channel success story is sales of portable PCs through the retail channel. Unit sales increased by 183 per cent for the period, pushing Sony up to become the ninth largest seller of PCs via indirect channels in the UK.
Amongst those vendors using dealer channel partners to distribute and sell their products, showing the greatest growth was Fujitsu with sales up by 89 per cent for Q3 1999, compared with a year ago.
Siemens also showed strong growth of 16 per cent, making the two companies - who officially merged on October 1st this year - the fifth largest player in this sector.
Compaq UK, showing its traditional strength in the dealer channel, were strongly at the top with over three times the sales of their nearest competitor IBM, Context found.
Toshiba was third, and HP fourth in unit sales for the period. Apple slipped to sixth position due to lacklustre sales in September.
Dan acts quickly to tackle hard drive problems
Dan Technology, a PC vendor that is diversifying away from its direct-sell origins and into the educational and government supply channel, moved swiftly in October to counter a major hard disk problem.
In mid-October, Dan announced to an amazed industry that it was was replacing - at its own expense - the hard disks in all Dan PCs fitted over the past five weeks with Western Digital Caviar models WDC 64AA, WDC 102A and WDC 136AA.
Chris Bakolas, the firm's marketing director, said that the company was advised by Western Digital that some units might contain a faulty chip.
"The chip affected 6.8GB-per-platter desktop hard drives manufactured between August 27 and September 24, 1999. Western Digital's long-term, predictive testing procedures had shown that there might be a future reliability issue with these drives," he explained.
According to Bakolas, "Western Digital informed us that their tests indicated drives using the faulty chip might not power up after between six and 12 months of continued use." Dan's customer service department was able to use the company's component tracking system to quickly identify all customers - some 480 in all - who might be affected by the potentially faulty drives. Within days of receiving the original notification from Western Digital, Dan had started to mail all affected customers to advise them of the problem.
"Clearly, this was quite a costly exercise," admitted Bakolas, adding that, when the company's reputation is at stake, "we'd rather be safe than sorry."
UK PC industry let off the hook on PC prices
After almost a year of investigation, the Office of Fair Trading (OFT) has determined that PC pricing in the UK is not a ripoff, as many consumer bodies have suggested.
The OFT started its investigations after more than a few people in the industry noted that a number of major PC retailers in the UK were starting to dominate the market.
Coupled with pricing differences between PCs sold in the UK and in Western Europe, with margins of 20 per cent not being uncommon, the OFT started its investigation.
Since the end of 1998, however, prices have fallen through the floor, and a pricing bloodbath has taken place in the dealer and retail channels. The effects of this has, of course, brought UK PC pricing down to the same levels as that seen in Western Europe.
Stephen Byers, the UK's Secretary of State for Trade and Industry, has welcomed the OFT's finding that competitive prices for PCs are available in the UK if consumers shop around.
"This was an important investigation by the OFT. Concerns had been raised that British consumers were paying more for PCs than those in other countries," he said.
"This investigation has shown that, if buyers shop around they can get deals that match the best prices in other countries - and they get better choice than computer buyers in France or Germany," he added.
Context, 0044-171-343-8063 (GB), http://www.context1.com;
Dan Technology, 00444-181-830-1100 (GB), http://www.dan.co.uk
DTI, 0044-171-213-5000 (GB), http://www.dti.gov.uk