Tough market forces computer makers to diversify
Faced with increased competition from foreign distributors of PCs, a newfangled, slick, cheap Macintosh iMac and generally dwindling margins for computer sales, domestic companies such as JTT Computer and Optimus have had difficulty growing their hardware business. Optimus, in fact, watched its computer sales take a nasty hit in 1997, when they dropped about 30%.
Some companies are moving away from their primary focus of manufacturing and selling computers toward developing information technology, such as creating software and writing specialized programs for corporations as well as government and military institutions.
"I think that the profit margin on production will be going down," said Maciej Markowski, marketing manager with Andersen Consulting. His opinion is echoed by other analysts, who also note that much larger profit margins can be found in information technology work.
"For sure there is such a switch," said Benita Mikolajewicz, an equity analyst with ING Barings, who also said that a competitive computer market has made it necessary for domestic companies to diversify their business.
Hardware's share of the overall computer market has shrunk steadily in recent years, dropping from 75-80% of the overall sales in the sector in 1994, which includes software and services, to about 60% in 1998, according to research put together by venture capital firm Enterprise Investors. Computer services have largely filled that gap.
One domestic computer producer that has talked loudly about focusing more on information technology is Optimus, which was established in 1988 and is quoted on the Warsaw Stock Exchange (WSE). According to a July 1998 report from Teleinfo500, Optimus's management believes that computer manufacturing is not very profitable and
planned to invest more in programming and software.
Andrzej Dylewski, president of Warsaw-based computer research firm Bureau DIS, said that from 1996 to 1997 Optimus bought two multimedia software companies, Optimus Nexus and Optimus Pascal. Dylewski estimated Optimus paid $1 million-$2 million for each of the companies.
Last year the company also signed a joint-venture agreement with U.S. defense firm Lockheed-Martin to work on information technology. In addition, Optimus is also trying to develop internet services, in which the company may invest up to $20 million, Dylewski said.
Optimus is trying to reduce its reliance on hardware sales, which accounted for 55% of its 1997 revenue of zl. 502 million ($156.88 million). The company's preliminary figures put 1998 revenue 22% higher at zl. 610 million ($174.29 million), although none of the analysts interviewed were quite sure how much of that came from computer sales.
The tight margins, however, are apparent in Optimus's profit, which grew 12% to zl. 30.8 million ($8.8 million) in 1998, according to preliminary figures.
But JTT Computer, another domestic producer, which manufactures the Adax PC, is planning to stay its course of manufacturing and distributing computers and components.
"We do not intend to change our role on the market," said Jacek Lorenz, marketing director at JTT.
He also noted that last year the company invested $750,000 for a new information system to improve the efficiency of its production and distribution. In 1998 the company sold 42,000 Adax PCs, an increase of 27% from 1997. JTT also saw its net profit increase slightly in nominal terms from zl. 391 million ($122 million) in 1997 to zl. 400 million ($114.29 million) in 1998.
Despite the increased presence of multinational computer makers such as Compaq, Hewlett Packard and Dell, which have worked in recent years to expand their distribution networks in Poland, domestic producers said that they are not overly fearful that they will lose control of this markets.'
The main reason, they said, is that those international computer brands tend to be more expensive than the Polish-made versions. JTT, for example, said that its boxes run 10% cheaper on average than foreign makers'.
"We are not competing with their computers," said Jacek Kozubowski, vice president at NTT System, which also focuses on PC production and only slightly increased its computer sales in the past year.
"These companies are in the higher sectors of the market" selling to larger businesses and the administration sector, JTT's Lorenz said. "Smaller companies and people are willing to purchase the Polish made computers."
But late last year, Apple introduced the iMac, an aesthetically designed computer boasting a powerful Pentium processor. It is also relatively cheap at $1,200, which increases its accessibility to the general public. Other Polish made PCs tend to run around $900-$1,200.
Despite the iMac's powerful yet sleek features, many are skeptical about its success in Poland.
"I think it will be more successful than previous Apples," Andersen Consulting's Markowski said. But he also noted that Apple computers are more commonly used in professional environments, such as graphic-design offices and newspapers, and not so much among the general populace.
"I think customers will not be willing to purchase this computer because they will not find the software for it," Lorenz said.
But the coast is not yet clear for either JTT or Optimus because they have to contend with even smaller computer companies run by their compatriots, which, by Lorenz's estimate, make up about 50% of Poland's computer market.
"We can compete with them very effectively in the office, but it is in homes where there is a problem," he said.
Those "garage" companies, he said, can make computers that are 15-20% cheaper than the commercially produced ones.
Some companies are moving away from their primary focus of manufacturing and selling computers toward developing information technology, such as creating software and writing specialized programs for corporations as well as government and military institutions.
"I think that the profit margin on production will be going down," said Maciej Markowski, marketing manager with Andersen Consulting. His opinion is echoed by other analysts, who also note that much larger profit margins can be found in information technology work.
"For sure there is such a switch," said Benita Mikolajewicz, an equity analyst with ING Barings, who also said that a competitive computer market has made it necessary for domestic companies to diversify their business.
Hardware's share of the overall computer market has shrunk steadily in recent years, dropping from 75-80% of the overall sales in the sector in 1994, which includes software and services, to about 60% in 1998, according to research put together by venture capital firm Enterprise Investors. Computer services have largely filled that gap.
One domestic computer producer that has talked loudly about focusing more on information technology is Optimus, which was established in 1988 and is quoted on the Warsaw Stock Exchange (WSE). According to a July 1998 report from Teleinfo500, Optimus's management believes that computer manufacturing is not very profitable and
planned to invest more in programming and software.
Andrzej Dylewski, president of Warsaw-based computer research firm Bureau DIS, said that from 1996 to 1997 Optimus bought two multimedia software companies, Optimus Nexus and Optimus Pascal. Dylewski estimated Optimus paid $1 million-$2 million for each of the companies.
Last year the company also signed a joint-venture agreement with U.S. defense firm Lockheed-Martin to work on information technology. In addition, Optimus is also trying to develop internet services, in which the company may invest up to $20 million, Dylewski said.
Optimus is trying to reduce its reliance on hardware sales, which accounted for 55% of its 1997 revenue of zl. 502 million ($156.88 million). The company's preliminary figures put 1998 revenue 22% higher at zl. 610 million ($174.29 million), although none of the analysts interviewed were quite sure how much of that came from computer sales.
The tight margins, however, are apparent in Optimus's profit, which grew 12% to zl. 30.8 million ($8.8 million) in 1998, according to preliminary figures.
But JTT Computer, another domestic producer, which manufactures the Adax PC, is planning to stay its course of manufacturing and distributing computers and components.
"We do not intend to change our role on the market," said Jacek Lorenz, marketing director at JTT.
He also noted that last year the company invested $750,000 for a new information system to improve the efficiency of its production and distribution. In 1998 the company sold 42,000 Adax PCs, an increase of 27% from 1997. JTT also saw its net profit increase slightly in nominal terms from zl. 391 million ($122 million) in 1997 to zl. 400 million ($114.29 million) in 1998.
Despite the increased presence of multinational computer makers such as Compaq, Hewlett Packard and Dell, which have worked in recent years to expand their distribution networks in Poland, domestic producers said that they are not overly fearful that they will lose control of this markets.'
The main reason, they said, is that those international computer brands tend to be more expensive than the Polish-made versions. JTT, for example, said that its boxes run 10% cheaper on average than foreign makers'.
"We are not competing with their computers," said Jacek Kozubowski, vice president at NTT System, which also focuses on PC production and only slightly increased its computer sales in the past year.
"These companies are in the higher sectors of the market" selling to larger businesses and the administration sector, JTT's Lorenz said. "Smaller companies and people are willing to purchase the Polish made computers."
But late last year, Apple introduced the iMac, an aesthetically designed computer boasting a powerful Pentium processor. It is also relatively cheap at $1,200, which increases its accessibility to the general public. Other Polish made PCs tend to run around $900-$1,200.
Despite the iMac's powerful yet sleek features, many are skeptical about its success in Poland.
"I think it will be more successful than previous Apples," Andersen Consulting's Markowski said. But he also noted that Apple computers are more commonly used in professional environments, such as graphic-design offices and newspapers, and not so much among the general populace.
"I think customers will not be willing to purchase this computer because they will not find the software for it," Lorenz said.
But the coast is not yet clear for either JTT or Optimus because they have to contend with even smaller computer companies run by their compatriots, which, by Lorenz's estimate, make up about 50% of Poland's computer market.
"We can compete with them very effectively in the office, but it is in homes where there is a problem," he said.
Those "garage" companies, he said, can make computers that are 15-20% cheaper than the commercially produced ones.
