Evans report says it all

There’s a four-letter word that continues to be the bane of many system builders – Dell.

According to Evans Research Corp., Dell’s PC market share in Canada grew from 20 per cent in the first quarter of 2003 to 23 per cent for the same quarter this year. By comparison white box vendors’ market

share fell six per cent, from 42 per cent in 2003 to 36 per cent for the same period this year.

The market research firm concluded white box vendors are facing two major challenges: Dell’s dominance in the Canadian PC market and reduced federal government spending.

In the wake of the sponsorship scandal Prime Minister Paul Martin froze federal capital expenditures over $5 million.

However, while market share is declining for white box vendors the overall PC market will pick up in the second half of this year, said Michelle Warren, IT industry analyst at ERC, who authored the report. That’s a positive direction for system builders, she added.

ERC predicts PC shipments to increase from 1.076 million machines in Q4 2003 to 1.187 million for the same period this year.

Hardware and software upgrades, such as Intel’s 64-bit processor and Windows 64-bit XP edition and increased IT demands, are going to drive spending in 2004, the report stated.

Evans defines the PC market as including desktops, laptops and servers.

The figures also showed Hewlett-Packard captured 17 per cent of the market. Interestingly, two per cent of that came from the first six months’ output from HP’s new Toronto assembly plant, which builds PCs for the corporate market.

The Evans report cited the plant as another factor that reinforced the popularity of custom-designed PCs.

The fourth largest segment in the quarter was shared by several vendors including Toshiba, Fujitsu and Acer, who held their combined share at 13 per cent, while IBM Corp. grew one point to 11 per cent.

“”The (report) said it all,”” said Paul Profeta, a partner at Forest Computers in Winnipeg. While government and education sectors are a small part of his business, Profeta said he’s noticed a lack of federal spending in recent months.

Dell’s ability to build PCs for $500 is “”kind of frustrating,”” he added. His firm, for example, has to pay $139 per system in licensing fees for Microsoft Office software whereas Dell, which orders a greater volume of licenses, pays much less.

“”It’s not so much the hardware procurement, it’s the Windows tax that the system builders have to pay,”” said Profeta.

Keith Pitts, general manager of Woodbridge, Ont.-based The Ram Group – a national system integrator which builds PCs – also saw a decline in IT spending from Ottawa, but he noted an increase in Dell shipments to government as well.

However, Dell’s biggest impact in this segment, he added, is its pricing model and the way it goes to market.

“”They’ve really taken that consumer model that they developed as being a low cost supplier into the government marketplace,”” said Pitts.

Pitts also mentioned Dell’s buying power when purchasing licenses from Microsoft.

“”(Dell’s) buying at better cost than we can buy and passing it on to the end user,”” he said. “”That’s why it becomes a price-competitive marketplace.””

However, Michael Chan, vice-president of operations at Audcomp Computer Systems, said Dell hasn’t posed a great threat to the company. Chan links the drop in desktop sales at the Hamilton, Ont.-based vendor to companies selling refurbished or off-lease systems.

“”SMBs need to refresh their PCs, so they would consider (refurbs) as an upgrade,”” said Chan, adding that this hasn’t affected sales with large corporate, education and government customer sets.

Bill Beckinsale, sales engineer of Sona Computer Inc., based in Ottawa, said while 65 per cent of its sales are to governments, the numbers are slightly down from last year.

“”It was really a battle,”” said Beckinsale. “”Outside sales reps are having to knock on doors a lot harder. They’re banging on every door.””

Beckinsale added Sona Computer is now focusing more on the corporate market, where it’s looking to grow sales this year.

System builders say there’s only one way to differentiate themselves from the major vendors of the marketplace: Service.

“”Our customers know they will be getting a very high quality system configuration that is sure to be trouble free for several years no matter which configuration they choose,”” said Jim Bains, president and CEO of Microcad Computer Corp., which is based in London, Ont. Bains added customers can usually get same day service or same hour service with no additional premium.

Dell outsources its customer service to a third party provider to companies such as Voda Computer Systems Ltd. of Kamloops, B.C., which is also a white box manufacturer. Its president, Andrew Watson, says selling is a matter of educating the customer.

“”You can buy a Dell and if something goes wrong you can handle it or you can let us take care of you,”” said Watson. “”We end up having to eat a lot (of servicing Dell’s product) so the customer doesn’t see it.””

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Jim Love, Chief Content Officer, IT World Canada

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