Subject:
Computers & Technology PC Makers Are Suffering From An Identity Crisis
Date:
Thu, 19 Mar 1998 10:47:38 -0800 (PST)
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News Alert from Investors Business Daily via Quote.com
Topic: (NYSE:CPQ) Compaq Computer Corp, (NASDAQ:DELL) Dell Computer Corp,
(NASDAQ:INTC) Intel Corp, (NYSE:SEG) Seagate Technology, (NYSE:AMD) Advanced
Micro Devices Inc,
Quote.com News Item #5819193
Headline: Computers & Technology PC Makers Are Suffering From An Identity Crisis
======================================================================
When it comes to brand names, the sum of a personal computer's
parts may be worth more than the whole.
Despite efforts by PC makers to plant their names in buyers'
minds, generic brands still pervade the industry. These so-called
"white boxes" sell in higher quantities than do the PCs of Compaq
Computer Corp. or Dell Computer Corp., recent data show.
Meanwhile, chip giant Intel Corp. and other parts suppliers are
steadily building their brand recognition. And that could be part of
the problem. Buyers focus more on which manufacturer made the
processor or the hard drive, analysts say.
"You have a new generation of buyers that understand computers.
They're looking under the hood of their PCs," said Richard March,
senior director at Channel Information Services in Manhasset, N.Y.
According to a recent CIS report, consultants and resellers in
North America sold about 6.4 million white boxes last year. That
tops the North American sales of market leader Compaq, which sold 5.1
million PCs. Dell was third with 2.9 million.
Resellers that offer both white boxes and branded PCs expect
market share of generic fare to increase by about 5% in North America
this year, March says.
That comes despite ongoing efforts by Compaq and other PC makers
to strengthen their brand names. Many reduced their prices to under
$1,000, with some dipping down below $800.
PC makers also are giving in to customers' demands for customized
PCs. Often a company will ask a reseller to build a generic machine
to meet exact requirements. Compaq and others are rejiggering their
supply chains so that their machines can also be configured upon
request. But these efforts will take time to work.
For now, PC buyers still are looking for processors from Intel or
a disk drive from Seagate Technology Inc. The name on the PC's outer
shell often is unimportant.
Partly to blame is Intel and its groundbreaking "Intel Inside"
marketing campaign. Since '91, the Santa Clara, Calif.based company
has run TV commercials touting the benefits of its microprocessor,
and the public has been receptive to them.
It's a double-edged sword for PC makers. On one hand, the Intel
Inside campaign provides a selling point. PC manufacturers jointly
advertise with Intel and affix the "Intel Inside" logo to their
machines.
At the same time, Intel's marketing can cheapen the brands of PC
makers, market watchers say. It validates the white-box market, says
March.
And Intel is stepping up its efforts. On March 4, the company
announced a new brand, Celeron, to describe a new line of chips
designed to run sub-$1,000 PCs.
Intel plans to announce another brand of chips later this year
that will run servers and workstations. Other processors will remain
under the Pentium II name.
But Intel officials say they don't intend to overshadow the brands
of PC makers.
"We designed Intel Inside to be an ingredient brand," said Dennis
Carter, Intel's director of marketing. "Without a computer, Intel
Inside doesn't do any good."
In buyers' minds, the PC brand is just as important as that of the
processor, Carter maintains.
Several other component makers, however, have embraced ingredient-
branding strategies. Intel's chief rival, Advanced Micro Devices
Inc., stepped up its advertising campaign last year. And Seagate,
the top maker of disk drives, last year began running national TV
commercials for the first time.
Some PC makers worry that they're shooting themselves in the foot.
Much of their advertising focuses on technical specifications.
That's no way to build a brand name, says Per Larsen, vice president
of marketing for IBM Corp.'s ThinkPad line of notebook PCs.
"A PC is advertised as a loosely connected bag of parts," Larsen
said. "You either have the latest technology, or you don't."
Larsen thinks the industry will eventually head in a different
direction. He envisions a market in which consumers trust PC brands
to deliver value. The specific innards of a machine will be less
important.
"As time goes on, most end users will stop worrying about what's
in the box," he said.
Still, it's clear that brand-name PC makers must rely on more than
their names to beat back the white boxes.
In the retail market, they're making strides by slashing prices.
Economies of scale allow Compaq and Hewlett-Packard Co. to sell PCs
for less than $800 each, while still earning acceptable margins.
Brand-name PC makers are also hoping superior technical support
will sway consumers and small businesses. IBM, for instance, offers
a membership program called Ownership Privileges. Customers who join
the program get preferential treatment on tech-support phone lines
and receive free software upgrades.
"It's key to create a sense of community," said Jim Bartlett, vice
president of marketing for IBM's Aptiva PC line. "It's like a
club."
It may be tougher, though, to wean the corporate market from white
boxes. The strategy there is to work with distributors and resellers
to provide built-to-order PCs. Instead of just slapping together a
no-name box, resellers will configure a PC from Compaq or HP.
Dell, which sells PCs directly to businesses, has quickly
generated tremendous brand recognition via this build-to-order model.
Others hope to achieve similar success.
But the PCs must be cheap and delivered quickly. In the corporate
market, name-dropping only gets a PC maker so far. |
