News Analysis:Now is the Winter of Auer?s Discontent

The head of Olivetti PCs has the unenviable task of convincing everybody that the firm will survive

One of the most stressful and challenging jobs titles in the PC manufacturing business has to be head of Olivetti PCs, the current proud bearer of which is Bernhard Auer.

There are three issues that Auer is having to deal with at the moment. First, he has to convince users and corporates to stick with the troubled company while it undergoes essential changes and restructuring. Second, he must persuade Olivetti?s new parent that it has invested in an organisation with a future. Third, and most importantly, Auer has to convince the channel to sell his company?s products.

Last week at the Cebit show in Hanover, Olivetti was forced to admit that it would make a number of redundancies as well as completely overhaul its channel partners by adding more distributors and boosting its number of resellers (PC Dealer, 19 March).

Faced with the accusation that Olivetti Personal Computers foundered because it was a little on the conservative side, Auer smiled and asked: ?What risks would you like us to take then? The PC industry is too volatile to take risks.?

While he may be reserved about the risks of the industry, Auer talks confidently about the prospect of getting the new Olivetti Personal Computers back on the rails within 12 months. That?s the timescale agreed by the investors which make up the company?s parent, Piedmont International, but it will not be easy.

So what about job cuts? If Olivetti is still restructuring and the countdown has started for the manufacturer to turn itself around, surely cutting overheads will still be a major consideration?

?The streamlining has been done. There will be no more job cuts,? claimed Auer. ?If there are any, most likely due to changes in technical and product strategy, they will be made up in other areas by recruitment. There will certainly not be a situation like there was in 1995 to 1996, when we reduced our staffing levels from 3,000 to 1,700.?

Auer admitted that the past 12 months of trying to keep the business afloat have been ?exhausting?, but he would not elucidate on the potential changes in technical and product strategy. He said it was merely a ?future assumption thing?, although he predicted that users may eventually pay a licence for a PC, ?a little like a telephone tariff?.

He said: ?The majority of the restructuring has happened. Last year we were split off as an integrated business. As far as our current course of action is concerned, we will have to adjust workforce and salesforce to a revenue level and margin level.?

The 12-month recovery goal is one that Auer believes can be achieved by playing safe. That means no foraging into network computer (NC) territory, at least not yet. ?We did a study last year on the NC and came to the conclusion it was too early to get involved. We have no plans, although I am convinced it is the next step in IT networking development,? he said.

Instead, servers and notebooks will be the backbone of Olivetti?s recovery programme. So does the manufacturer intend to sell its way back into profitability, relying entirely on products to remove the red ink on the balance books?

?Servers currently account for three per cent of our business and we expect growth in the region of 30 per cent this year,? said Auer. ?Notebooks account for 24.4 per cent of the company?s revenue and we are expecting to achieve growth of 50 per cent this year.?

The vendor certainly seems to be making a go of it. Auer outlined deals with eight server manufacturers, including Intel, Novell, Netscape, Oracle and SCO, to join its strategic Olivetti Server Club. There is also a deal to pre-install NT 4 on all products, with a view to targeting sales at the small to medium enterprise market.

Auer was keen to emphasise the fact that some Olivetti customers have stuck with the manufacturer through thick and thin. One glance at Dataquest figures, which give Olivetti a market share of 5.3 per cent of the European notebook market ? up 90 per cent on 1995 ? supports this notion.

But while company financials have not yet been released, and Auer is not yet aware of how much the drawn-out sell-off process last year has eaten into the manufacturer?s profits, the industry has yet to find out the true financial state of Olivetti, under the direction of its new owners. This will be revealed at the end of this month, when the Piedmont takeover will have been finalised and detailed investment information will be released.

Yet one thing is certain ? the UK market is crucial to Olivetti?s success. ?It accounts for 11 per cent of our business and is growing. We are not re-emphasising markets where we have a good presence, but we have put the Benelux and Nordic countries into a sales group with the UK because they did not justify a full-blown sales, marketing and support team.?

So can Olivetti Personal Computers succeed? Auer believes so. ?Given our product mix and a fairly conservative growth, the rationale is that with the new investment and restructure, we have the momentum to broaden our product range and turn the company around.? A conservative answer from a conservative man running a conservative company.

The fact that customers have stayed loyal and protected the Olivetti brand suggests things may turn out all right and the past may be shaken off, but do not expect any innovations. For the next year at least, this is a play safe, me-too PC vendor.