The increase in notebook sales during Q2 2005 is dissipating, with preliminary Q3 figures out from IDC showing that 304,000 notebooks were shipped in Q3, down from 330,000 in Q2.
While the sub-$1000 notebook has done wonders for the market in the past six months, its magic is starting to wear off, with revenues also beginning to come down fast.
According to IDC senior analyst PC hardware Mike Sager, the strength of the Australian economy was, ironically, to blame for this malaise.
"Australia has a stable economy and hasn’t had the same drop-off as the United States and this has attracted a lot of vendors to the market here," he says. "The local market is quite crowded now."
This had resulted in a flood of notebooks creating additional price pressure, according to Sager. "You’ve got Acer, Dell, HP and now Lenovo with a sub-$1000 notebook, so you’ve got four vendors playing in there," he says.
The squeeze
While the increased choice for resellers would seem like a boon, many of the challenges facing vendors were being passed onto dealers.
On the one hand, vendors and dealers needed to be price-aggressive and push as much product as possible, but on the other hand, there is still a need to make decent margins. For many resellers, managing both is just not possible.
One Victorian reseller, who asked not to be named, says notebook margin squeeze was adding strain to his already tenuous relationships with suppliers.
"The notebook manufacturers screwed the market," he says. "They don’t really care about resellers."
He says notebook hardware sales ‘have had it’ and without current service and repair income, resellers would be out of business by next year.
According to Toshiba information systems general manager Mark Whittard, resellers need to be selective in what brands they represented.
"Some manufacturers have reached very low sub-$1000 price points by squeezing the reseller margin but Toshiba doesn’t do that," he claimed.
"Our strategy is to offer the product at full margin to the channel and we bear the brunt of any price decline so channel margins remain the same."
With seasonal variations also having a large impact on managing revenue streams, choice of vendor partner was not the only challenge resellers had to hedge against, IDC’s Sager says.
In the countdown to Christmas, the research company has identifi ed three key product categories — printers, projectors and PDAs — that will increase competition for the consumer notebook dollar. "Notebook sales are very much contingent on what happens in other product categories," Sager says. "If prices in these three product categories decline going into Christmas, then notebook sales will be hurt."
Mass market buying power was also another consideration, Sager says. This was especially important in the face of Harvey Norman’s recent purchase of Megamart.
"Harvey Norman has a lot of power," he says. "A lot of how notebooks fare over Christmas will be contingent on what they and stores like BigW do."
However, for HP notebook product manager Janet Bradburn, the addition of peripherals to low-margin notebooks was a strong card left for resellers to play.
"Resellers who focus on up-selling customers to higher models, and add key notebook options and extended warranties, will be the ones enjoying the highest profi ts from the sale of mobile devices," she says.
Queensland-based reseller, The Laptop Company (TLC), has developed a ‘cradle to the grave’ service approach to selling its notebooks.
TLC director David Hawley, says the company manages the customer from their first purchase through to successive model upgrades, by arranging financing, doing regular health checks and offering trade-back deals come upgrade time.
"When TLC first got into notebooks it was a niche market," he says. "Now notebooks are way more commoditised. Everything’s price-driven and very few people care about the back end of the sale."
Just as customers needed to be choosy in picking a reseller, so too did resellers in selecting prospective distributor and vendor partners, IDC’s Sager says.
"Over the next nine months there will still be a lot of marketing dollars coming in from the new vendors," he says. "Once we get into next year and the consumer market slows down again, that funding will begin to dry up."
Sager cautions resellers to be on the lookout for vendors that kept their channels separate.
Just six months ago, Acer was the target of a number of disgruntled resellers with its charge into the sub-$1000 notebook market. But its mobile computing business manager, Lindsay Tobin, claims partner fears about being undercut by mass merchants had been addressed.
"We think the issue’s been addressed fairly well," he says. "From the feedback I’ve had we’re seeing the initial concerns in the commercial segment being well and truly alleviated."
HP is also keen to mark the sub-$1000 notebook as a positive, with Bradburn arguing the products have opened up a new market.
"The sub-$1000 notebook has fuelled growth in unit terms, so sales growth has not occurred at the expense of higher priced notebooks," she says. "These notebooks have brought new customers into the market."
While cheap prices may attract new users in the short term, second generation purchase will be dictated by other concerns, ASUS managing director Ted Chen, says. "The user’s experience and service quality will decide their next buy," he says. "Therefore the dealer should support a reliable vendor which has a clear channel policy without jeopardising dealers’ long-term advantage."
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