Personal Computer Wars Cross Atlantic to Europe
Computermakers are building new capacity more quickly than the PC market is growing; analysts expect a shakeout among large firms
PARIS AND AUGSBURG, GERMANY
TWO PC magazines were bought within 12 hours of each other: one in France, one in the United States. Each magazine carries an advertisement for a Dell 486SX-class personal computer.
A couple years ago, the price difference across the Atlantic would have been huge. Today, the Dell machine runs $1,599 in the US; $1,626 in France.
Of course, there are differences. The French model has a smaller hard disk and, with taxes, costs an extra $325. But this comparison is proof positive that the long PC price war that has shaken the US market is rattling Europe as well. And not all of the continent's PC makers are likely to survive.
"We're certainly seeing reduced prices in Europe," says Peter Sondergaard, a Copenhagen-based PC analyst with the Gartner Group. "And we'll see casualties."
To avoid that fate, Europe's big computer companies including Siemens-Nixdorf and Groupe Bull are having to restructure. Each one is taking its own route to become competitive. Speeding up the line
Every 40 seconds at Siemens factory in Augsburg, Germany, a computer keyboard rolls off the line. The plant is highly automated. Only a handful of workers handle each line. The company's new PCs have been redesigned. They require one-third the components of Siemens's 1987 model and take a fifth of the time to produce.
"I have enough capacity to make one or two or 300,000 more PCs," says Walter Rossler, head of Siemens-Nixdorf's personal computer business unit. By selling more volume, Siemens can spread its costs over more machines. Going against current industry, the company is bringing production of components in-house. Instead of buying monitors from South Korea, this factory will soon make its own.
"Our aim," Mr. Rossler adds, "is to become one of the five biggest [PC makers] in Europe."
Siemens is not alone in its restructuring moves. In its new and gleaming tower on the west side of Paris, Groupe Bull has scored a coup. In June it announced a new alliance with Packard Bell, including the purchase of just under 20 percent of the Chatsworth, Calif., PC maker. The alliance allows Bull's subsidiary, Zenith Data Systems, to jointly develop and market new products and sell its existing computer notebooks into Packard Bell's extensive network of mass merchandisers like Sears.
"Overnight, our manufacturing volume has reached the same level as Compaq, IBM, and Apple," says Michel Motro, president of Zenith Data Systems Europe. With bigger volumes, the company can spread its costs and price its computers more aggressively.
Zenith Data says the alliance will improve the profit picture very soon. Rossler predicts that Siemens's PC unit will become profitable in 1994, if the European economy picks up. Attention on Europe
Just about every PC manufacturer in Europe is jockeying to increase its sales and become a worldwide player. Big American companies like IBM and Compaq have brought their low-priced machines to Europe with great success. Last week, Compaq announced that it had more than tripled its quarterly profits: $102 million versus $29 million in the same quarter last year. Compaq is No. 2 in Europe after IBM.
There is only one problem with this strategy. The market is not growing fast enough for everybody to succeed. So the ferocious price cutting continues.
In terms of units, "we think the European market will likely grow something like 12.5 percent this year," says Marye Tonnaire, an industry analyst with Dataquest Europe. But total revenue will grow by only 1 percent.
Even PC executives doubt that all four big European computer companies - Siemens, Bull, ICL in Britain, and Olivetti in Italy - will survive. Rossler flatly predicts that one will disappear during the decade. It will not be Siemens, he adds.
The PC divisions of these companies are key to their overall competitiveness. Restructuring trends
As in the US, European businesses are downsizing, moving away from centralized mainframe and minicomputers to using distributed networks of PCs. Bull is perhaps the farthest along in this regard. It is restructuring itself from a large-scale manufacturer to an integrator of distributed systems.
"We have gotten through the most difficult phase," says Georges Grunberg, Bull's senior vice president of European cooperation.
The company has cut its work force from 43,600 in 1989 to 35,175 last year and it has announced another 18-percent cut to be achieved by the end of next year. More importantly, Bull's new direction is clearly understood by employees, Mr. Grunberg says. Its Distributed Computing Model - a set of technical specifications that allow disparate computers to work together - is drawing positive comments from analysts.
But Bull's profit picture remains bleak. Despite narrowing its operating losses last year, restructuring caused net losses to grow from $585 million in 1991 to $892 million last year. Bull expects to post a profit in 1995.
By that time, PCs will account for 40 percent of Bull's revenues, up from 35 percent today. The company plans to mix its hardware know-how with its large-systems expertise to build systems for large corporations, Grunberg says.
"The big projects can't be directed by anyone but the large enterprises," Grunberg says.