Death knell for notebook margins
Profits in the notebook market continue on their downward spiral, with many resellers reporting unsustainable margins on laptop hardware sales.
In early April, Jeff Li, managing director at local builder Pioneer Computers, told CRN that resellers were making a maximum of $15 margin on some brand name products.
Many resellers around the country have confirmed that this is the case.
Andy Wang, manager of Brisbane-based reseller PC Shopper, said that although notebook margins keep dropping, shop owners have resorted to slashing prices to attract customers.
The more popular the product, the [smaller] margin there is. The margin we make can range from $10 to $15 on $1000 to $2000 notebooks from popular vendors like Asus.
Resellers also claim the sub-$1000 notebook was unhealthy for business. Notebooks sold at recommended retail prices of $900 and below would actually cost a retailer $1000 to purchase from a vendor. If the products do not sell then the reseller's cash flow would be tied up.
"If BenQ and Acer have a promotion, like the sub-$1000 product, we make no margin at all," said Wang. "We make nothing on these products. Sometimes it makes us feel like we only provide a service on behalf of the vendor."
Wang said the company relies on word of mouth from customers who have already bought a product from them.
"That's the nature of the notebook business and there's nothing that can be done about it," Wang said. "There are too many products at the moment and there are a lot of choices for customers and even brand names are really cheap," Wang said.
Peter Huo, owner of Sydney IT shop Zip Computer, said he was making around $20 to $30 margin on products from Asus and BenQ. "I have had to reduce the quantity of stock because it's hard to make margin on laptops.
"No reseller makes over $50 margin on any laptop brand. We don't even look at the percentage of margin any more, it's all about calculating how many dollars you can make on a sale," Huo said.
He added that the company had already reduced its notebook stock and makes money from laptop services.
Eric Kwon, director of Newcastle-based retailer Tri Benedict, said unit sales had dropped off. "Our sales in the last few months are down by 10 percent - it's a really tough market. The numbers of laptops bought has reduced and the numbers haven't grown. I think people buying laptops are on a downward trend," he said.
He claimed that some resellers were doing "back door deals", charging customers for services and even charging them to "have a look at a laptop".
Responding to reseller comments, Ted Chen, managing director of Asus in Australia, defended declining profit margins, saying that Asus offers rebate incentives to channel partners on top of the margin for the hardware sale. "I won't say what these [incentives] are because I don't want to educate my competitors," he said.
Andy Wang, manager of reseller PC Shopper, said he does frequently experience problems with the availability of stock. "There is an issue with the lack of supply - you can't get the stock customers want, particularly with some Asus notebooks. It doesn't have the stock in its Australian warehouse and I can't make a sale," he said.
"Depending on the model, I could wait up to one month for a product - a whole container shipping from overseas takes that long," he said.
Chen confirmed the stock levels on some Asus products were low, but the company was looking at improving its logistics. "It's possible some resellers do have problems with getting stock on very popular models - I have had one partner sell 400 notebooks in two days. Our logistics is one of the best in the industry and we are continually improving it," he said.
Mark Whittard, general manager Toshiba Information Systems Division, said there were some vendors causing conflict within the notebook channel. "There are some competitors criticised for their channel strategy. One minute they love the channel then they're taking business away from it," he said.
"Most competitors are confused about channel strategy. One vendor can go from selling direct to customers and undercutting the reseller. Then they sell the same product through retailers, only to take it away and push it through mass retail merchants."
Some resellers have complained to him about vendors stealing their clients, said Whittard. "I know of channel partners who have won the business then had the vendor take it away from them. A couple of big competitors have done that and still continue to do it."
Whittard said vendors are just part of the problem for resellers. They also need to look at broadening their portfolio to incorporate services and accessories with laptop sales.
"Resellers need to understand what their customer segment is. They also need to look at strategies, which strengthens the market," he said.
Whittard said it was a struggle for box movers to change the way they are doing business. Resellers could no longer survive by only selling hardware platforms. "They need to get the mix and balance right to include a range of products, services and different priced notebook models."
Michael Sager, research manager hardware IDC, said resellers needed to stop complaining and diversify their business in order to survive. "I feel sorry for them but I wonder what took them so long to figure out what was going on. Resellers should have seen the changes to the notebook market coming when prices in LCD screens dropped and the exchange rate shifted," he said.
"Complaining resellers need to look at why they are still in the business. They need to diversify because they aren't going to get back those $100 to $200 margins from two years ago."
Sager said businesses needed to rethink their strategy and put some plans into place.
