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Business Week International International Business
THE PC MARKET: FROM COZY TO CUTTHROAT
Just two years ago, the names of Olympic Technologies, TIKO Computer Corp., and other clonemakers used to send chills through the boardrooms of industry giants like IBM. Now both have vanished, just two victims among some 200 no-name makers that have pulled out of the European market over the past 12 months.
The battle for Europe's PC market has taken a decisive turn. Industry leaders such as Compaq, IBM, and Apple, which were slammed by cheap clones in 1992, are pushing the mainly Asian copycats off Europe's shores. In 1993, Europe's top 10 PC companies grabbed back 7% of the market and are likely to add 5%-6% to their current 57% this year, according to market researcher International Data Corp. (IDC).
SHORT CYCLES. That doesn't mean easy times are returning. The struggle between clones and name brands has reshaped Europe's PC market. Once a slow-moving Shangri-la of generous margins, it's now fiercely competitive, with prices between giants and second- or third-tier players varying by only about 15%. "Pricing in the U.K. and Germany is sometimes more aggressive than in the U.S.," says David L. Prais, European marketing manager for Gateway 2000, a U.S. PC maker that sells by mail.
As in the U.S., product cycles in Europe now last little more than six to eight months. That's forced manufacturers, wholesalers, and retailers to shift strategies and source locally, spelling doom for Asian imports. "The Taiwanese didn't move quickly enough to manufacture in Europe, to be closer to the customer, and to keep inventory down," says Simon Pearce, senior director at IDC in London.
Europeans have become more like their U.S. counterparts, seeking a hot technology the minute it hits the market. "The two markets essentially are the same," says Bill C. McCracken, general manager for manufacturing and distribution for IBM's PC unit.
Orders are soaring for multimedia PCs, says Graham Taylor, vice-president at market researcher Inteco. In just six months of selling in Europe, Gateway 2000 racked up sales of $47 million in Britain and Ireland. A quarter of the PCs sold were based on Pentium chips. At the same time, home-PC makers such as Commodore International Ltd. and Atari Corp., which sold well in Europe long after tanking in the U.S., are now losing ground rapidly. Commodore, in fact, announced plans to liquidate on Apr. 29.
The battle between big names and clones lured in a lot of first-time buyers, who had been turned off by high prices. IDC now predicts the home office/small office segment will zoom at 19.5% annually over the next five years, vs. the corporate market's more modest 6.1%. That has top-tier companies selling their products at new retail chains such as Germany's Vobis and France's PC Warehouse.
The giants are placing big chips on this battle because Europe's market is still less developed than the U.S.'s. One in three American households has a PC, but in Europe only one in nine does. "Europe is not only as big or bigger than the U.S. market, it's got a lot more potential," says Gateway's Prais.
One indication of the market's volatility is Compaq's recently dethroning IBM as the Continent's top PC seller. Compaq, which moved faster to revamp its strategy, outsold IBM in Europe in this year's first quarter. It led the price-cutting among top-tier companies. IBM's McCracken says Big Blue was bested mainly because shipments of two PC product lines--the PS/2 and the ThinkPad--were delayed by component shortages. Nonetheless, he agrees that in Europe, change is the only constant.Gail Edmondson in Paris