Corporate PC buyers see barriers for local makers

WELLINGTON (09/23/2003) - Large-scale PC users say that competition from overseas brands, particularly in the "second tier", is likely to hit local manufacturers hard, especially in the face of a trend to extend the life of their PCs.

Local assembler The PC Company Ltd. credited falling prices and stiff competition from international brands for its slide toward receivership last week.

Statistics New Zealand has just bought "quite a number" of PCs, says IT head Graeme Osborne.

"In the end, we went with (Intel-based) HPs." At that level, he says, PCs are holding their price, but in the second tier, where the processor chip is likely to be from a cheaper competitor such as AMD, the market where The PC Company has been, prices are dropping markedly.

Home users and small businesses would be buying in this "commoditized" market, says Osborne, and large overseas brands such as Acer are a force in this market, to the detriment of local competitors.

Support and longevity, of the hardware and the supplier, matters as well as price. While theory suggests the local companies might provide better and quicker support, in practice they have not matched up to the overseas suppliers' international experience and economies of scale, he suggests.

While the price of PCs has not fallen much at Statistics' end of the market, "we've just made a decision to increase the life of our PCs from three to four years", and will thus be decreasing the amount of IT budget spent on PCs, says Osborne.

The speed of increase of hardware power has presented this opportunity, he says.

"Hardware is now moving faster than software; when you moved to the latest Windows you used to have to upgrade the hardware to handle it. Now that's no longer so." That must have an adverse effect on hardware sellers, particularly the smaller local outfits, he says.

Kerry Elton, IT manager at CentrePort, says the price of a PC of the same power is decreasing, but this makes little difference in the context of her strategy.

"I've always gone for about the same price, usually a NZ$2,000 (US$1,190) limit, and whatever I can get for that." Like Statistics, Centreport has used increasing power to extend the life of its PCs.

"Some of them last five years. Reality says you have to stretch the IT dollar. If you've got something that does the job with, say, a Pentium 3 at 350MHz to 400MHz, why change it? You don't usually need a GHz machine, except for special purposes." And when it comes to providing longevity "there is plenty of room for improvement" in the equipment quality and service from local companies. "(NZ assemblers are) competing at a relatively high labor cost" compared to some large international manufacturers, Elton says.

Inland Revenue (IRD) IT manager Tony Lester says the organization has noted a drop in PC prices of as much as 20 percent a year over the past few years, but declines to comment on the effect of this on local sellers. Lester says Inland Revenue expects to replace about 1000 PCs a year.

Procurement chief Kevin Broughton says for IRD's latest PC refresh, when it chose Acer machines, it had no responses to its RFP from local suppliers, so was unable to consider any.

IRD started a regular PC replacement program late last year, and is "testing" a refresh period of four years, though it may in some cases choose to bring this down to three, says Lester.

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