Lauding laptops

Performance on a par with desktops, affordable prices and stunning designs have transformed the notebook into ‘must have’ piece of IT kit

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By  Stuart Wilson Published  February 28, 2005

Margin matters|~|Braum200.jpg|~|Graham Braum, business development manager for mobility products at Acer|~|Mobility is the name of the game and the channel is taking to the notebook form factor like a proverbial duck to water. Performance on a par with desktops, affordable prices and stunning designs have transformed the notebook from an executive tool into a consumer must have. However, price wars and a glut of vendors fighting for market share have taken their toll on margins. Resellers must look beyond entry-level models to the mid-range and high-end, where they will find profits, product variation and long-term potential for making money on the form factor of choice Forget the desktop dinosaur, the future belongs to the notebook PC. Notebooks have come a long way in a short space of time. “We saw acceleration in notebook sales in 2003, faster acceleration in 2004 and the boom will continue in 2005,” says Graham Braum, business development manager for mobility products at Acer. “Notebooks are now a huge chunk of the market and may approach 30% of all PCs sold in a few years time.” The figures back up Braum’s belief. “In 2003 there were just over 300,000 laptops sold in the GCC, and I think we are going to finish close to 400,000 for 2004,” he added. Consumers are driving notebook growth rates according to Manish Bakshi, general manager at BenQ Middle East: “Several years back this segment of the market was corporate driven, but right now it is consumers who are driving demand. It is moving from the corporate to the end-user.” Those customers sitting between the consumer and corporate space are also contributing to the mobile mania. “For Toshiba, small to medium businesses are still the largest market,” says Ahmed Khalil, MEA regional general manager at Toshiba Gulf. “They make up more than 50% of the total market demand.” Price erosion and functionality on a par with desktops have played their part in driving volumes higher. “The cost of a notebook almost equals a desktop today, and this is a great achievement on the part of vendors,” says Keon Hyeong Kim, IT products manager at LG Electronics Gulf. “Notebook form factors now come in a size and weight that make them truly mobile thanks to Intel’s Centrino platform.” “LCD panels have fallen in cost over the last few months, and this has also had an effect on the cost of production,” adds Bakshi. “Economies of scale have also played their part. The volume that we are now moving has helped us to bring the prices down.” ||**||Retail growth|~|Khalil200.jpg|~|Ahmed Khalil, MEA regional general manager at Toshiba Gulf|~|What was considered impossible in the notebook market a few years back is now reality. With Centrino models from top-tier vendors such as Toshiba available for under US$1,000, volumes have soared but margins have come under severe pressure. “Profits on low-end notebooks are not too different from what you would find in the components space,” commented Armagan Demir, VP for sales at Dubai-based distributor Empa. “Resellers maintain that on entry-level notebooks, margins are a few percentage points at best.” LG’s Kim agrees that price points are low, but argues that market dynamics play their part as well. “Prices in the Middle East are some of the lowest that you will see worldwide and almost on a par with the US. Compared to Europe and Asia, the cost is incredibly low. But people here would rather go for a cheaper machine than better quality, because a major sector of the target audience has a low budget. To some in the channel, especially those based in the re-export hub of Dubai, notebooks have become a commodity item and volume counts most.” Run rates for vendors, distributors, and resellers have surged at an impressive rate, but profits remain the ultimate goal. Vendors such as Sony, Toshiba, IBM and LG, are focused first and foremost on the upper end of the market to ensure margins remain healthy. “In the Middle East year-on-year price erosion is at 5% and this will continue,” explains Khalil. “Competition is tough as you go down the value chain. The minute you go up the value chain it is different. There are not many vendors competing against each other when it comes to the high-end. We focus on having a healthy product mix, a balance to fulfill the needs of the customer but at the same time trying to sustain the price point from deteriorating. In order to sustain innovative products in the market and keep investing in R&D, we need to sustain margins.” Dharmenda Lalai, manager of the IT marketing department at Sony Gulf, agrees: “Sony has a policy of ensuring that resellers sell at a fixed pricing point. They can make a healthy margin of 6%; we don’t have a price war and our brand equity grows. If resellers do sell below this level, they get a warning from us and they are struck off if it continues. Sony has dominated the high-end of the market, but we recognise that consumers want a mid-level offering. At the start of 2005 we introduced new models, but we will not add many partners. A controlled channel allows us to offer customers much more in the way of service.” The retail channel for notebook PCs continues to accelerate apace. With 70% of all sales passing through shopping outlets, BenQ is heavily retail-driven, and Bakshi believes the percentage can only grow. “We have been negotiating with a number of potential partners, including Metra Computers for Saudi to drive consumer sales. The future for vendors and retailers is digital convergence, and never-before-seen channels-to-market will emerge.” ||**||Serving the midmarket|~|Vishnu200.jpg|~|Vishnu Taimni, product manager for HP Middle East’s personal systems group|~|Enterprise customers are also embracing notebook PCs. “Overall the business market is still in favour of desktops, but more and more companies are starting to invest in mobile form factors. We see orders increasingly coming in for hundreds and sometimes thousands. This is especially true of Saudi, where the big players have gone whole-hearted into portable computing,” says Vishnu Taimni, product manager for HP Middle East’s personal systems group. It is the midmarket that vendors see as being the black hole for channel-driven notebook sales. “I want to see a reseller similar to those you would find in Dubai’s Computer Plaza,” argues Khalil. “But with a clear value-add for the SMB market. They should offer a turnkey solution. You need a shop where you can buy off the shelf, and also source a networking solution or a wireless set-up. There is a huge demand for these services, and the demand will grow. The channel should consider the benefits of providing a complete solution to customers.” As well as a business tool, notebooks are also now being pitched as entertainment centres. Each of the major vendors, from HP and Acer to Toshiba and Sony, is promoting funky technologies to consumers. “Over the coming year we will be going to market with a series of new features that consumers will love,” claims Braum. “Widescreen is already popular, but we have gone further with the ability for users to segment their screen and have several different viewing areas for watching movies while working.” While the multimedia sales pitch makes sense in the Middle East, wireless internet remains in its infancy despite the attempts of notebook vendors and Intel. When compared to America or Europe, Middle East hotspots remain in relative short supply, but the industry reckons this has not had too severe an impact on sales. “Centrino was designed for a number of reasons: long-lasting battery life, faster processing, and wireless usage. The fact that wireless is not so prevalent here may actually benefit us. When service providers finally get in on the act and provide this service to consumers, numbers should again rise, as people have another reason to go for mobility,” says Khalil. ||**||Looking good|~|manishbakshibenqbig.gif|~|Manish Bakshi, general manager at BenQ Middle East|~|Other vendors are attempting to win over customers through looks. Acer launched its Folio range of notebooks last year, designed with a brief to appeal to fashion-conscious IT aficionados, and the competition is following suit. “When end-users first walk into a shop, what they notice before anything else is not specifications or added features — it is the design and the aesthetic appeal of the model. BenQ products look beautiful, and this catches the eye,” believes Bakshi. But can vendors really distinguish themselves when many of the laptops on display from multiple vendors are actually assembled at the same factories in Taiwan or China? The role that OEM manufacturers play cannot be underestimated. According to Taiwan’s Market Intelligence Centre, an estimated 70% of 2004’s global laptop shipments started life on the island, and that percentage is set to hit 73% during 2005. Quanta, Wistron, Compal and Asustek are just a handful of the assemblers that dominate the scene, with another major OEM producer, Foxconn, poised to join the already competitive landscape. The volumes churned out by the Taiwanese manufacturing powerhouses have made it difficult for regional assemblers to compete with the internationals. Saudi powerhouse Zai comes in ninth on the Kingdom’s IDC 2004 notebook rankings, while Dubai-based DCS still graces the pages of the UAE table. But the giant vendors dismiss the chances of these local heroes making a long-lasting mark. “There is so much competition, and margins have been cut to a point where a vendor that does not have the economy-of-scale cannot keep up,” argues HP’s Taimni. “Laptops are designed for mobility. If you travel and your locally-branded PC breaks down, will you travel back to get it fixed?” ||**||Lenovo lands|~|Imtiaz200.jpg|~|Imtiaz Ghani, Middle East, Egypt and Pakistan manager personal computer division at IBM|~|Looming on the horizon is a deal that has the potential to shake up the industry and its Taiwanese OEM dominance. Behind the brouhaha that greeted IBM’s decision to divest its PC business to Lenovo, Big Blue is keen to stress that it is still a major force in the PC landscape. Imtiaz Ghani, Middle East, Egypt and Pakistan manager personal computer division at IBM, explains: “The ThinkPad branding will continue, and the laptops will be sold under the same trade names for the next 18 months. Warranty support and services will also continue as it is.” What really excites IBM’s channel partners is the thought of IBM’s technology-laden laptops combined with Lenovo’s low pricing points. “Pricing on IBM PCs will improve as Lenovo’s aggressive financial structure kicks in,” says Gaurav Brahmwar, owner of Dubai-based reseller Computer Depot. “Margins shouldn’t change but IBM sales should increase as the vendor takes more market share.” Looking beyond the short term, the region’s long-term prospects for sustained notebook growth appear healthy. “In Egypt the PC penetration rate is 1.8%. If you look at markets like the UAE you will see PC penetration around 16.8%. This is still below the global standard, and shows that the steep growth in all PC form factors is sustainable,” concludes Khalil. “We will not see any slowdown or saturation in this market until 2010.” The notebook form factor looks set to be the star performer in the Middle East market for years to come as businesses and consumers alike drive demand. ||**||

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