A chicken in every pot and a pc(well kinda) in every room!
EMachines, low-price computer maker, has high ambitions
February 17, 1999 08:12 PM
By Dick Satran
SAN FRANCISCO, Feb 17 (Reuters) - Price-busting personal computer maker EMachines Inc. expects to go public this year or early next and will become what it claims will be the "fastest-ever (start-up) company to crack $1 billion in sales."
EMachines burst onto the scene at the end of last year with a fully-equipped personal computer for $399, at a time when even the most cut-rate competitors were doing it for $599.
The South Korean-built machines are so cheap, many analysts doubt EMachines will ever be profitable.
"We're almost profitable right now and will be by the end of the quarter, and we'll be showing good profit by the end of the year," Chief Executive Stephen Dukker said in an interview.
Helping to propel its earnings, it hopes, will be the roll-out of a higher priced $800 machine called the eStation that will have some of the colorful design features of Apple's iMac computers, though it will have Windows operating system.
If they make their goal it will confirm the wisdom of Dukker's strategy to create a "virtual company," so lean and focused it has only 20 employees, mostly housed in an office complex in unfashionable Fremont, Calif., across the bay from Silicon Valley.
The tiny staff markets the EMachines made by TrGem Computer Inc. and Korea Data Systems. Customer service is out-sourced to a third party, and the company sells through a limited number of large retailers, keeping marketing and distribution costs low. There is no made-to-order Web site, or national advertising. The name brand is being built through word of mouth, and retailers' inserts in Sunday newspapers.
Dukker says in addition to the low-cost structure, it makes revenue from the Internet, through its partner Netcom. As a result, it can make money on a gross profit margin that is half of the industry standard, Dukker said, and it will be able to show a picture of a very profitable company by year's end.
"Our intent is to go public in the fourth quarter of this year, or early in the first quarter next year.
"We believe we have the opportunity to set the record as the fastest-ever company to crack $1 billion in American history, in our first 12 months," Dukker said.
Microsoft, by comparison, took 15 years, and the Internet era hot-growth companies, Amazon.com Inc. and Netscape Communications Corp., will do it in just over three years.
"We're on track to sell 1.7 (million) to two million PCs in the year," after selling 180,000 in the last six weeks of 1998 and pre-selling into retail channels another 700,000 for the first half of this year, Dukker said.
But rather than focusing on sales alone, Dukker, a former retailer who worked at CompUSA and Computer City likes to focus on the way EMachines "changed the industry by reinventing what the low-end PC is."
While PC components have been falling steadily in price, the computer makers have been continually upgrading their products, keeping them in the $1,000-plus range and equipping them with more firepower and frequent new model cycles.
Dukker contends that this has left many potential buyers out of the market, and the entry of EMachines means that penetration of PCs is being stretched for the first time in more than three years.
"We've tapped into an unserved market," Dukker said. "We've reignited the first-time buyers."
Dukkers says EMachines' buyers have mostly come from, and will continue to be found, in roughly 20 million potential first buyers for low-priced machines. Also in the mix will be families wanting a second computer and those with college bound students. The market share is not being taken from existing PC makers, though Packard Bell, its most direct low-end competitor "appears to be sinking fast," he said.
Dukker said the PCs it sells are "not leftovers" but are "sixth-generation, Pentium II-level" PCs. Computer magazine critics say that the computers will look dated soon because they are not cutting edge, and they also fault the company's policy of charging for service calls 15 days after the initial call. But Dukker responds that his partners, TriGem and Korean Data, have a long history of making PCs without quality problems and returns have been lower than the industry average, another factor boosting profit margins.
"The demand in price point is so strong and model has been so successful for our retail partners, as well as ourselves, the level of commitment is just building like topsy," he said. AAPL NETC MSFT
REUTERS
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