Michael S. Dell acknowledged "Germany didn't achieve the company's full expectation."
Technology
Germany Shows Dell Is Vulnerable
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Sales Slip as Foes Step Up Competition
By Matthew Rose
03/26/1999
The Wall Street Journal Europe
Page 4
(Copyright (c) 1999, Dow Jones & Company, Inc.)
Investors looking for chinks in Dell Computer Corp.'s previously impregnable armor should
look to Germany.
Until recently, the U.S. computer maker's sales there have mirrored the unbroken
advances seen elsewhere in the world. But after rising smartly for the first three quarters of
last year in Europe's largest economy, unit sales actually shrank 0.3% in the fourth quarter.
The fourth quarter is traditionally slow for Dell, which isn't a big consumer marketer at
Christmas. But last year's fourth quarter was exceptional.
Germany, the world's third-largest computer market, is important to Dell. The country
accounts for 25% of Dell's European sales, and troubles there contributed to the
company's slower-than-expected overall sales growth for the fourth quarter ended Jan. 29.
Dell, based in Round Rock, Texas, doesn't break out revenue by country, but Chief
Executive Michael S. Dell acknowledged in an interview earlier this year that "Germany
didn't achieve the company's full expectation."
Indeed, the slight fall in fourth-quarter sales, and the decline in market share to 3.6% from
4.7%, contrasts with a 62.1% increase in unit sales across the whole of Western Europe,
and 55% sales growth in Germany on average in each of the previous three quarters,
according to market research firm Dataquest Inc.
Executives blamed the disappointing overall sales on the company's strategy of
maintaining profit margins rather than cutting prices to boost sales. In addition, analysts
fear that rivals have begun to erode Dell's lead by embracing its lean-inventory and
direct-sales approach. That was Dell's competitive advantage and explains the company's
brilliant track record. But if others are doing it, the company may not be able to continue to
grow at its former pace.
As for the decline in Germany, Mr. Dell blamed the slump on a "massive share grab under
way" following the decline of some large local players. But others say the problem also
stems from Dell not being "Dell enough."
"The German managers don't listen to the success of Dell in other areas," says Roland
Hertner, until last month the company's head of corporate accounts in Germany. He says
Dell compromised its successful direct-selling method to compete against local players.
As a result, the company was battered by fierce local competition in the market for big
corporate accounts -- its brot und butter -- and heavy turnover among local senior
executives.
In the last quarter, Siemens AG and Fujitsu Ltd. ate into Dell's traditional business, offering
enticing deals to large corporate accounts. Fujitsu's average selling price for desktop
computers in the quarter was around $2,000, compared with $2,500 for Dell, the
companies say. Fujitsu pushed Dell out of deals it might have expected to win earlier in the
year, getting the majority of a Deutsche Telekom AG tender and a contract to supply
German bank Bayerische Hypo- & Vereinsbank AG with 15,000 laptop computers.
Winfried Hoffmann, Fujitsu's combative European chief operating officer, says the
company was able to offer lower prices because of its more efficient cost structure. Fujitsu
also gained an advantage by offering especially tailored products to its customers, a
strategy first employed by Dell itself in the U.S. and a core factor behind its successes in
recent years. HypoVereinsbank's laptops have an extra-wide screen not typically available,
for example. "We will try and cream Dell in this quarter, too," Mr. Hoffmann says.
Dell has struggled to respond. The company initially chose to tweak its traditional model of
selling direct because most of the German market is dominated by local computer
resellers. Many companies are reluctant to buy from anyone other than their traditional
supplier. But partnering with local players poses fresh problems, analysts say. Not only
does it raise the unit cost of Dell's computers, but it makes the company less responsive to
local demands. Former executives say Dell lost business from Deutsche Telekom, for
example, because it was unable to offer specially configured products.
Siemens, which posted a 45.6% jump in unit sales in the quarter, also offered evidence
that German companies are, in fact, susceptible to the direct-selling method that Dell in
part abandoned. Rudi Lamprecht, head of Siemens's computer division, said 20% of its
sales are now conducted over the Internet, and for some large accounts the company
stations up to 20 employees on-site.
Of course, Dell isn't planning on being left behind. Having brought in U.S. management
consultants Bain & Co. to reorganize the German operations, Jan Gesmar Larsen, the
general manager for Dell in Europe, says there is "no reason to believe we can't make
Germany work." Moreover, most multinational PC-makers, including Compaq Computer
Corp. and International Business Machines Corp., have stumbled in the fiercely
competitive German market.
Already, Dell has reorganized its European operations into four distinct regions to better
control the various country operations. In Germany, Mr. Gesmar Larsen says the business
model will be fine-tuned to bring it more in line with Dell's corporate image. For starters,
the company has already introduced a call center in Frankfurt.
"There is no doubt that some of our countries haven't been willing to endorse the Dell
model," says Mr. Gesmar Larsen. "But we have to fine-tune the model, and we see that as
an opportunity to grow further."
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Gary McWilliams in Houston contributed to this article.
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Dell-inquent
Top ten PC makers in Germany in the fourth quarter, by market share
and growth
Company Q4-98 Q4-97 Growth
Vobis 16.3% 16.5% 26.8%
Siemens 11.7 10.3 45.6
Fujitsu 11.5 10.9 36.6
Compaq 10 9.1 41.3
IBM 6.1 5.6 40.4
Acer 3.6 3.9 19.9
Dell 3.6 4.7 (0.3)
H-P 3.5 3.5 31.6
Targa 2.7 1.5 135.8
Toshiba 2.3 2.3 29.1
Total German Market Growth: 28.8
Source: Dataquest Inc. |
