PERSPECTIVES - Distributor viewpoint

Making money on notebooks is getting harder as direct vendors muscle hin and corporates rein in their spending.

For distributors, the notebook market holds mixed fortunes at the hmoment. It is growing, but margins are falling and direct vendors are htaking more business away, stemming the growth potential.

There are currently three significant trends in the notebook sector, says hAndy Gass, deputy managing director at Computer 2000. The first is the hincrease in customer demand for brand names, from which Dell is doing hwell. That, of course, means less business for the distributors.

'The second is what is happening in the corporate market,' Gass adds.

'The first thing firms stop spending money on is notebooks and there has hbeen a bit of a switch-off over the past two months. Notebooks in a hcorporate cost two or three times more than a desktop and these horganisations look hard at the value they get and the return on hinvestment.'

The reasons for the corporate tap being turned off, or at least down, are hdifficult to isolate. There are probably a number of factors, including hconcerns over year 2000 projects and the euro; worry about the potential hof a recession; a greater willingness to buy direct; companies that hdelayed spending until the arrival of the Pentium III; and the appeal of hthin clients.

Whatever the reasons, the result is less business for resellers and hdistributors. The third and final trend Gass highlights is the crowding of hthe market. Retail, he acknowledges, has taken off and Sony in particular his doing well.

Sony is a relatively recent entrant, and with strong contenders such as hSiemens, Hewlett Packard and Fujitsu - which doubled its market share hbetween the fourth quarter of 1997 and the fourth quarter of last year in hWestern Europe - battling for market share, it is little wonder that some hvendors are finding their sales squeezed and their channel partners hsuffering as a consequence.

Ian French, systems and services business unit director at Ideal Hardware, hsays the market has grown, but not as quickly as the distributor would hhave liked it to. The leading brands remain strong but there is plenty of hroom for innovation.

'The notebook is only a commodity if you treat it as one,' he says. 'It is hthe biggest opportunity resellers have to add value.'

Mobile users, French adds, are also the mobile workers, the remote access husers, the teleworkers and the people who use GSM dial-up facilities.

The opportunities lie around these users and applications. 'The margins hare absolutely fantastic and yet very few people understand the value hproposition there,' he says.

Resellers need to come out and start exploiting this sort of opportunity, hFrench adds. He doesn't believe they are put off by complexity, but thinks hthey need to make more of an effort with the notebook market.

'If they just sit there, they are never going to make any money - it takes heffort, training and education. There is a lot of money to be made by hpeople who are looking at specialist markets and at bundles,' he hstates.

French acknowledges the job of selling notebooks is getting harder, but hsays resellers need to make the product more exciting, turning it into a hpackage that perhaps encompasses other products: 'If you just ship it out, hthere is no money in it,' he points out.

Portable Add-ons specialises in supplying accessory products for hnotebooks.

Managing director Clive Girling argues that dealers need to pick a market hand go for it.

'While mobile computing in itself can be seen as a niche market, it has hmany specialist sectors itself. Corporates, for example, are starting to hlook seriously at deploying Windows CE devices throughout their horganisations.'

He also points out that there are very different support and service hrequirements for laptops that set them apart from the desktop market and hoffer more opportunity for the channel.

'The specialist software, communications infrastructure and laptop-specific hardware - PC cards, batteries, interfaces and so on - all hmake mobile computing a real value-add sale and a million miles from being ha commodity,' Girling says.

Unfortunately for distributors, that's not really how the reseller hcommunity is seeing the products right now.

THE KEY PLAYERS

IBM

Although its share of the market dipped slightly from 14.3 per cent in the hfourth quarter of 1997 to 12.7 per cent in the same period last year haccording to market research firm Context, IBM continues to command a hsizeable chunk of the A-brand mobile market.

The vendor offers a comprehensive end-to-end range from entry level to hhigh end. Like those of its rivals, IBM's product range incorporates a hwide array of options and specifications, including a variety of removable hstorage and hard disk drive options, UltraBay design and connectivity. The hIBM range features four basic product families, starting with the ThinkPad h390 series at entry level, priced from #1,070; the slim, lightweight hThinkPad 560 series from #1,500; the ThinkPad 600 series from #1,800; and hthe powerful ThinkPad 770 range from #3,200.

THE KEY PLAYERS

TOSHIBA

Commanding almost a quarter of the overall European notebook market, the hundisputed UK and worldwide market leader in notebook technology continues hto dominate from one end of the market to the other.

Toshiba's product range has been split into four sub-sets covering the hvendor's entry-level products through to its high-end packages.

Traditionally aimed at the entry-level market, Toshiba's Satellite range his moving up the specification ladder to tackle the mid-range, while the hpopular Tecra variety has all but cornered the high-end, with the flagship hTecra 8000 leading the charge. Toshiba comes into its own in the hspecialist, niche sectors of the market. The vendor claims that, at about hthe size of a VHS video cassette, its Libretto product is the smallest hWindows 9x-enabled notebook available on the market, while the hfeatherweight Portege range carries the company's 'thin and light' hmessage.

CUTTING NOTEBOOK COSTS

The whole total cost of ownership (TCO) model has changed dramatically in hthe notebook market, says Jon Godfrey, commercial director at Technical hAsset Management - a company specialising in the disposal of computer hequipment for businesses. He says the useful life of notebooks has been hreduced with display improvements and that has pushed up maintenance hcosts. Organisations are now turning away from the usual on-site hengineering cover approach and instead are using the mobility of the hequipment to reduce cost.

So the problem of a faulty laptop becomes a logistical problem, not a htechnical problem.

Godfrey says: 'We have found that it is up to 40 per cent cheaper to ship hand replace equipment rather than fix it on site, with reduced downtime hand faster service levels.' But this assumes certain prerequisites, he hadds. Users may need to be looking at an installed base of 100 laptops to hmake it work and they will all need to be the same or similar models to hmake the equation work well.

Users would need a spares stock of configured ready-to-go systems as hreplacements in the right place and at the right time. This buffer stock hneeds to take into account reliability, number of users, peaks of use and hother factors. Essentially, the equation is the same as it would be for hthe third-party maintenance firm, but for complete systems not parts.

With a short-life, high-cost item such as a notebook, the residual value his also a very significant part of the TCO. The most advanced users use hresidual value information to decide when to buy and when to dispose of hequipment, in the same way they do when buying cars, says Godfrey.

'The latest model is going to cost you a fortune.

But buy something a little older, keep it for a year and then dispose of hit, and you always have a new laptop and you only stomach the depreciation hof, maybe, 40 per cent of capital value instead of 80 per cent,' he adds.