Mitsubishi's exit won't be the last

The consumer PC market is a hard battlefield for tight margins.

The withdrawal of Mitsubishi this month from the consumer PC market, and its accompanying statement that it is to position Apricot desktops for the SME sector and internet, is symptomatic of an industry chasing an illusive goldmine. It won't be the last time a company finds the consumer PC market too hot to handle either.

Mitsubishi is the latest in a line of big name companies that have withdrawn from the home PC market, refocusing instead on small businesses (PC Dealer, 18 February) - a trend claimed to be the result of a bottoming out within the consumer sector.

One of the first companies to experience the rougher side of the consumer market was AST - it pulled out in May 1997.

Mike Cranna, analyst at IDC, said: 'There is a general move in the industry towards SMEs. Sales in the consumer market are suffering, as there has not been a substantial hi-tech selling point like MMX or Pentium II recently.' He added that, combined with high PC penetration in UK homes, the consumer market has also suffered fierce price competition.

The manufacturers that survive the home PC market will be those that make the fewest mistakes, and every manufacturer is aware of this. Hamish Haynes, Compaq consumer business manager, said: 'Mitsubishi dipped its toe in the water and lost a foot. Companies like AST and Mitsubishi think that a cheap, strongly branded business machine with a tennis game on it will sell as a home machine.

'You've got to be prepared not to make a lot of money in this market.

You've also got to be prepared to play ball with very powerful retailers, and if you don't give them or the consumer what they want, you lose business.

There will be other companies following AST and Mitsubishi out of the market.'

The consumer PC market may well be bottoming out, but the fight for the remaining business is making it a very hostile and expensive environment.

When asked why Toshiba decided against launching a home PC in the UK, Alex Pidgely, Toshiba marketing programmes manager, responded: 'The sums just did not add up, so we didn't launch. The home market is really difficult to support. The SME market and e-commerce are the biggest buzzes this year. With an estimated one and a quarter million SMEs in the UK, that's a lot of business.'

Mitsubishi has reached the same conclusion via a longer and more expensive route. 'We only moved into home PCs about three years ago but we simply found that it was not profitable,' admitted James Blackledge, international marketing director for Mitsubishi.

Naturally, some brands will survive in the demanding home PC market, but it will still be survival on a knife edge.

Martin Hurren, Hewlett Packard product manager for the Pavillion PC range, said: 'We've also only been in the home market for two and a half years and conditions are volatile, so you have to run the business very tightly.

It's easy to lose your shirt. At the moment there are too many manufacturers in the market and eventually there will be just a few major brands.'

Even the Microsoft brand on a PC is no guarantee for success in the retail sector, as Viglen discovered to its chagrin.

However, the importance of maintaining a presence in the home PC sector is not only an economic need. 'A presence in the home market is important for the strategic position of the brand. You can't afford to ignore such a vital sector,' said David Whittle, product manager for Siemens Nixdorf.

But, to make avoid mistakes and present a strong brand to the public may not be enough. Larger PC manufacturers are beginning to notice that the PC literate home user is not impressed by glitzy ad campaigns, but by value for money.

Blackledge admitted that other companies could take up the slack in the consumer market. 'Smaller companies can adjust quicker to the whims of the consumer and these firms are helped by a growing number of confident home users who are willing to take a risk with such companies,' he said.

Blackledge's comments were borne out by Herve Jodogne, a retail analyst at Context. 'The consumer market has become far more mature and people now feel confident enough to buy their goods via mail order and not rely solely on retail outlets.

'It's a very competitive market, with consumers demanding more for less money. It's far easier for the big brands to sell to small businesses where the margins are bigger,' Jodogne said.

By all accounts, the shake-out of vendors from the home market is far from over. More knowledgeable consumers will ensure that both manufacturers and retailers come up with coherent strategies - joint strategies or otherwise - if they are going to weather the coming storm within the sector.