I met a distributor the other day whose biggest customer builds 1,000 PC units a month out of a 200sq ft workshop.This company outsources production to home-based outworkers. For each completed box, the builder pays z10.
Delivery and collection adds z5 to z6 per unit. This strikes me as an ingenious way to save space - but in the long term it may not be particularly efficient. z10 is an outrageous price to pay. Whatever happened to homeworker exploitation? Pay like this could distort the expectations of a depressed local economy.
Besides, a leading PC builder tells me it can assemble boxes for z7.50.
But this company turns over an eight-figure sum and has invested several millions in a production facility that must be kept busy to pay its way.
And companies, such as Newbury Data and Centerprise, will build PCs for the trade for as little as z20 a piece. So, the final labour assembly element in cost of PC goods sold is a footling amount. Unfortunately, this is where many small system builders make their money.
Component costs are far more significant. This is why few smaller system builders ask questions when they are offered grey Microsoft software at have-to-be-counterfeit prices. And why so many are tempted to buy no name brands on the cheap - at the risk of seeing many more expensive DOAs and system unit failures.
Buying better is a key skill for the small system builder. Keeping stock to a minimum is another. But how long will these practices enable system builders to survive when even Compaq admits to feeling pricing pressure?
In January, Compaq admitted the PC hardware market was much tougher than it had anticipated. According to US reports, it is launching a DeskPro for as low as $700. Although this is for the system unit only, Compaq's downward price spiral suggests things can only get worse and there will be a high profile collapse or two in the UK mail-order dealer/assembler market this year.
Smaller system builders are not immune from hardware price wars - many are profitable only because they fail to price their time properly. An obvious way forward is to flog (slightly) higher margin networking equipment and services to their existing customer base.
But how many system builders are doing this today? Clearly too few, as the SoHo and SME sectors are virgin territories for networking equipment.
Come back in two years' time and it will be a different story, if vendors' forecasts are correct.
Big name vendors like Intel, 3Com, Cisco, Novell, Microsoft are all tipping into the small business networking market. And through their distributors, are willing to support and subsidise dealers ready and able to take on the SME networking challenge.
But system builders who fail to gear up for the small business networking bonanza - in the coming months, not years - will lose out to better prepared competitors.
Drew Cullen is a freelance IT journalist.
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