Defending the humble PC desktop

The humble desktop is coming under fire from its mobile counterpart and facing up to a future where it is no longer the king of the PC sector. Does that mean resellers should exit the desktop field now or is there a way for them to squeeze some profit out of a sector that has become the least attractive of all the hardware categories? Channel Middle East asked some of the region's leading desktop PC producers to justify their existence to the channel.
Defending the humble PC desktop
By Julian Pletts
Sun 17 Aug 2008 04:00 AM

The humble desktop is coming under fire from its mobile counterpart and facing up to a future where it is no longer the king of the PC sector. Does that mean resellers should exit the desktop field now or is there a way for them to squeeze some profit out of a sector that has become the least attractive of all the hardware categories?

Channel Middle East asked some of the region's leading desktop PC producers to justify their existence to the channel.Channel Middle East canvassed opinion from the following desktop PC channel experts: Samer Atassi (SA), sales manager at DTK Computers; Manoj Thacker (MT) managing director at Sky Electronics; Sanjay Kachroo (SK), product marketing manager desktop and servers at Acer; Yves Matta (YM), UAE volume sales director for channel at Fujitsu Siemens; Sameh El Deeb (SE), client PC manager at Dell; and Khaled Kamel, regional director at Lenovo.

With the notebook market exhibiting such strong growth, is it realistic to expect channel partners to reduce their investment in the desktop market?

SK:Reports from the IDCs and Gartners tell us that, by the end of 2008, notebook and desktop share globally is going to be split. In the Middle East, Africa and Turkey, desktops will still command a higher percentage than notebooks. But, if you look at the UAE, notebooks have already taken over the quantity and numbers.

The top three global brands are not seeing reduction in investment from partners towards desktops because the cost, over the past four to six quarters, between clones and name brands is becoming negligible. And, before that, clones were a healthy proportion of the overall PCs being sold. Branded PCs will continue to grow in the desktop segment because globally clones are dying.

MT: The notebook market share is an additional share. Those channel players who were doing screwdriver assembly with basic or no technical knowledge have shifted to easy sales as laptops can be sold in a commodity or accessory fashion. So, it is only realistic from a sales point of view, it should not be mistaken for a permanent shift.

SE:I can only comment on Dell channel partners, and our channel partners' abilities are really developed and diverse. I cannot say that we have channel partners that are 100% focused on desktops.

However, desktops as a business is, with some partners, a large proportion of their business, especially partners that are catering to the education, public sector and corporate space. But with mobility increasing they will have to adapt by retraining their sales forces and modifying their marketing message. This, of course, is not a total surprise for them.

SA:The desktop market is still a strong market. It is diversified and exists strongly in most of the markets in our region. None of the reports produced for the region show negative growth in desktops sold during the first quarter of 2008, on the contrary. There is double-digit growth in many countries. For DTK, desktop volumes are increasing substantially and achieved double-digit growth in the first quarter.

YM:It depends, because we look at the channel in two segments. Today we do not focus on the resellers from Khalid Bin Al Waleed Road and Computer Plaza because it is not one of our priorities. We see strong potential in power retail and SMB. Today we are putting a lot of focus in terms of account management into the SMB sector and this involves education and all of the verticals.

There is small potential in power retail, not much volume, but lots of vendors are very active. We are producing our new line-up, which will target gaming and media consumers, and this is where margins and some profitability for both retailers and distributors can be found. And for the SMBs the margins are not too bad. There is still potential in the desktop market and we are working on it. What value is there in the Middle East channel selling desktops given that margins are notoriously low?

MT:Margin is tight if it is a low cost screwdriver assembly desktop. Otherwise the value is great for those assembling high-end technology. The availability of high-end components, from casing and power supply to hard disks, memory and processors, has increased more than ever before as well. SE:Let me ask you this question: do you think margins are any better in notebooks? I have a different point of view here. Pushing just one product will definitely put a squeeze on your margins, whether the product is a notebook, a desktop or even an entry-level server.

We have been trying to work hand in hand with our partners to develop their skillsets and solution-selling capabilities.

Yes, of course there is a bit of margin squeeze with desktops compared to notebooks, but I don't think there is a huge margin for selling notebooks.

SA:There is value attached to the desktop business. Desktop margins in the hand of the channel are beefing up and desktop partners now have the ability to penetrate various markets and conquer new customers with their product portfolio and diversified offerings.

It is definitely not advisable for channels to let their desktop business disappear or go down. The channel did, however, decide to reduce investments and effort in desktops for the sake of investing in notebooks, allegedly where the money is.

YM:I don't believe margins are too low because for us to enter power retail - which is 40% of our business - shop managers ask for minimum margins to operate and this is something we are able to give. Whatever the percentage that they ask for shelf space today, there is higher profitability for PCs rather than notebooks. In power retail there is not much volume to be done with PCs, but it is still profitable.

KK:Most of our enterprise and corporate customers prefer a one-stop-shop for their IT requirements. Although the product sales margins are reasonably low in this market, it is the ongoing relationship with the end-user customer in terms of their total solutions requirement, and the value added services, that allow for an ongoing revenue channel - thus boosting profitability.

Which market sectors in the Middle East represent the greatest opportunity for channel players selling desktop PCs?

MT:The most important end-user for the channel to be targeting in the PC sector is professional users, gamers and those using demanding high-graphics applications.

SA:Desktop-selling opportunities are vast and spread over most existing market sectors, such as government, education, corporate, SMB, healthcare, the service industries and retail, to name a few. However, it is true that notebooks are in demand within those sectors as well, but it won't eradicate desktops. The two forms will co-exist and complement each other for better functionality and results.

SE:Education is the main market segment driving the desktop business. However, that won't be the full picture in the medium term because the sector is experimenting with mobility, especially with tele-education. The second most important sector is the public sector. It is easier for public sector entities to manage PCs in terms of security of data and other factors.

Also, they see it as an opportunity to cut expenditure. Lastly, there is the SMB sector, which is a market segment where mobility is growing very fast, but there are certain areas where SMBs feel more secure using a desktop.

YM:In education we see higher growth every year. Verticals led by government institutions, such as oil and gas and health sector institutions, are growth areas. Geographically, we would first look at the UAE and then at Saudi Arabia. After that, the Levant and Egypt are very active as well.

SK:Today we have desktops that are fulfilling the home server purpose. Desktops now offer internal storage of over two terabytes and a lot of facilities like raid and data recovery.

Desktops also offer higher reliability so if one hard drive fails it can be backed up on another. If somebody wants a high-end graphics card or high-end features, such as a large amount of storage, they have to go for PCs. These things cannot be offered in notebooks. You cannot have a very high-end graphics card on a notebook.

What more should resellers in the Middle East be doing to make sure they are capitalising on the desktop PC market?

YM:The channel must be much more active. A lot of SMB channel partners are shifting from box-moving to solutions-selling. This is something that should not be ignored in the PC market and is why we help them with lead generation and directly address the end-users and work the leads with them.

SE:They need to develop their skillset and develop their leading edge technological solutions. For example, there have been a lot of efforts from Dell and other vendors towards developing the management and operation of desktop clients.

I wouldn't say we are moving away from traditional desktops, but we are evolving the desktop to harness the power of the network and the datacentre. These trends are gaining momentum, even in the Middle East. We are working with our channel partners to develop their understanding and capabilities around these solutions. If you are only selling traditional desktops you will have problems. SK:When talking about capitalising on the market, support becomes a very important factor. And when you sell a PC you get an easy route into further services, both with the consumer and the commercial clients. By selling a PC you tend to increase your relationship with that customer and you can sell them other gadgets as well. What are you doing to ensure the survival of your Middle East desktop partners against this backdrop of low margins and rapid mobile PC growth?

YM:We choose a list of five to eight SMB corporate partners and list the team that is working on lead generation and addressing the end-users in terms of verticals. Then we route the customer directly to them as a value add from Fujitsu Seimens. It also means that we can make sure that they have the easy selling opportunities.

MT:We are positioning them as technology distributors - first movers - and we make sure that they are able to meet customers' demands. We encourage them to sell what is technologically challenging in terms of pushing the boundaries of the customers' expectations. Most of all, it is very important that the partners differentiate.

SA:DTK offers various new products and solutions based on the PCs that are attractive to end-users. We are committed to our channel partners and customers to ensure that they continue to support this business and invest in marketing DTK PCs. We prove this through our continual improvement of design, performance, and external aesthetics to measure up to the ever-evolving needs, taste and desires of customers.

SK:One fundamental factor is that we are not segmenting partners in terms of the product portfolio. Acer partners have access to the desktops, the notebooks and all of the product lines that Acer produces.

In the Middle East market we are number one in notebooks and number two in desktops. Partners do not see that desktops have grown from Acer over notebooks or vice versa. In the Middle East, we have grown our revenues 12 times, and 12 times we have grown with our partners.

How much longer do you think business will be viable for those channel players in the Middle East that heavily focus on the desktop PC market?

MT:Well, the same question goes to those that are trading or doing brokerage business in laptops. Why do they think tier-one vendors will use them tomorrow? What value do they offer? Workstations and storage-oriented desktops are key. All technological changes are leading to the need for a desktop. Unless a laptop can answer those needs in the future.

SA:The PC business will still be viable to the channel as long as Intel, AMD, hard disk manufacturers and so many other venders still produce new technology components for PCs. That will also be the case if vendors still develop and produce new and advanced PCs to appeal to the corporate and mass users.

KK:When we look at the unprecedented economic growth currently witnessed by many Gulf countries, and of course the much publicised rises in oil prices, we expect to see continued growth and therefore many more infrastructure projects, which should sustain business momentum in this market for the foreseeable future.

SK:Nobody can really predict the viability of the business. The business is always changing and so are the desktops. We have a desktop PC range that is very successful. Desktops are getting much smaller and technology is evolving very fast. It is not about desktops or even the notebooks or servers.

It is about the technology and where the technology will lead us. We will continue to offer the market the latest, the best and the most reliable products in the segment that we are focusing on.

SE:That is a tough question because I believe channel partners that are heavily focused on the desktop market will have a tough time because the traditional desktop market is definitely not expanding. IDC can validate my claim.

The sectors where desktops are leading are well known to everyone so competition is cornered into these two or three segments and margins are being eroded fast. So their prospect is really around diversifying into other solutions and in the domain itself.

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