Just as the pundits predicted, another of the low-end PC assemblers has closed down in the wake of PC General going into receivership.
Christchurch-based PC assembler Lowe Technology Services (LTS) has closed down just one week after PC General shut its doors.
Computerworld understands LTS was forced to close after components supplier Insite Technology called in a debenture it was holding over the company. Following PC General’s closure IDC general manager Graham Penn said: “Small PC manufacturers are going to be driven out unless they can find a niche or a reason for being in the market. They won’t be able to compete purely on price.”
However, the closure of LTS is fuelling speculation that component suppliers, made nervous by PC General’s shut-down, might start calling in debts and putting pressure on the smaller players in the local assembly industry. Some players are fearing a domino effect.
But component suppliers Computerworld spoke to disagreed and backed Penn’s comments. One anonymous source says he believes both PC General and LTS were competing at a tough end of the market and had nothing to differentiate themselves. “As I understand it, the creditors involved in each case were quite different. I don’t think there will be a knee-jerk reaction by the suppliers.”
PC Direct marketing manager Richard Moss predicts niche players will be the ones that survive. “They’ll be there because they have a genuine market, and then really it’s up to the big players. I would say the top seven or eight today will basically just expand their market share at the expense of the smaller people because of the economies of scale and pricing structures.”
Moss’s views about the big players dominating seem to be backed up by IDC figures showing Compaq has reached number one in the retail market for the first time. Moss says that unless companies have something to offer the customers, their chances of survival are almost nil.
He says January is crunch time. Turn-over is low and stock bought for Christmas is being paid off. “I think you’ll see a lot more companies going under at that time.”
Christmas spending is an important factor, and last year was shaky until about the end of November, partly because of uncertainty over the government. Moss says it was a good period in the end. He says he hears from others in the retail industry that it is quiet. “Retail out there is pretty tough at the moment, as we’re seeing in other industries as well.”
Moss says PC Direct tries to split its business 50-50 between the corporate and consumer markets, but PC General’s was primarily a retail-based company. He says it’s easy to get into the computer market. “The barriers for entry are very low. It doesn’t take much to source a motherboard from somewhere, a video card from somewhere, buy a processor, a hard drive throw it all together, buy the operating system and make a system.
“Where a lot of people get caught is they see the money up front but not the service and support that goes behind the product — especially in the retail market.”
Moss says if you sell 100 PCs in the retail market, you’ve got 100 PCs to support, whereas in the corporate organisation, people are better skilled and there is one skilled point of contact. He doesn’t know if that’s a trap that PC General fell into.
This year saw the entry of Gateway 2000 into New Zealand, although it’s hard to say how much an impact it has had. Moss says he hasn’t seen much of Gateway. He says businesses like PC General failing doesn’t help when it comes to customers choosing who they will buy from. “We’ve had more questions in the past week from retail customers asking about the stability of PC Direct.”
PC Direct is part of the Blue Star group, owned by US Office Products.