Since Compaq's acquisition of Digital in June 1998 (see story, page 1), the Slovak brand name PC market has become a battlefield between two rival IT armies - those of Compaq and IBM.
The two competitors are currently suffering from the effects of Slovakia's economic malaise, which has knocked the wind out of brand name personal computer sales and given a market advantage to the far cheaper no-name PC's. IBM and Compaq, as a result, are fighting back by emphasizing the sophisticated services they offer.
"I have the feeling that PC market in Slovakia is in decline," said Miroslav Majoroš, general director of IBM Slovakia. "To some extent, it may have been caused by elections and the related freeze on investment. Also, the [fact that the Slovak government will be forced to issue a] provisional state budget for next year could influence sales in a negative way."
According to marker research performed by the International Data Corporation, the decline on the 1998 Slovak PC market represents more than 20% year-on-year.
Another factor currently affecting sales results is the October 1 decision of the National Bank of Slovakia to cancel the fluctuation band of the Slovak crown, a move which has led the currency to fall approximately 10% below its former parity with a USD-DEM currency basket.
Jozef Jurkovič, sales and marketing manager with Compaq Slovakia, argued that the influence of the weaker crown on 1998 sales would be negligible. "Although the crown, after its steep fall at the beginning of October, fixed at about the same level, it has had a negative effect on sales. However, I wouldn't say that it will be reflected in our long-term results," he said, adding that the devaluation affected PC sales the most.
But IBM's Majoroš said that if 1998 sales were poor, 1999 looked to be an even tougher year. "I think that the results for the first quarter and probably for the first half of 1999 won't be as successful as this year's results," he said, explaining that IBM's customers in the state administration sector wouldn't be able to invest money into new IT projects because of the cuts in the state budget.
According to Majoroš, another of the greatest structural weaknesses of the Slovak PC market was the country's persisting lack of foreign investment and development projects like the European Union's PHARE programme and World Bank programmes. In other countries, Majoroš said, these financial sources represent an important part of IT spending.
"Slovakia is a small country when it comes to information technology, so one big project can entirely change [a company's] whole market share," he said. "It's just a matter of time when [such IT projects] come, but it will be difficult to finance [such big IT orders] using only domestic sources."
No-names penetrating market
Given these economic handicaps. it is not surprising that expensive IT equipment is languishing on store shelves. But according to Jurkovič, the Slovak PC market is not saturated yet. Falling sales of brand name PC's, he said, is evidence of declining customer purchasing power, and has been counterbalanced by the rising market share of no-name PC's.
"No-names can't endanger our position directly, but they for sure take a piece of the PC share pie," said Jurkovič, adding that as the computer consciousness of Slovak consumers rose, the popularity of no-names would decline. "We do not consider no-names as direct competition, because you can't compete with somebody who sets their price so low that you can't meet it with brand names," he added.
Majoroš agreed that the current strength of non-name PC's was a temporary reflection of the economic troubles afflicting the nation. "The number of PC's in households is increasing, and majority of these [new models] are no-names, which reflects the economic situation in Slovakia," he said. "Industrial companies and small and medium entrepreneurs have also become typical buyers of no-names."
Given their global strength, IBM and Compaq have good reason to feel confident of their long-term prospects in Slovakia. Number one on the world PC market is Compaq, far ahead from Dell or IBM (see world chart, page 9). In Slovakia, however, results for 2Q98 show IBM out in front of its market peers. "Yes, IBM is our number one competitor," said Jurkovič, "although it's not as aggressive on the PC market as Dell or some others."
Majoroš explained that IBM's good results for 2Q98 represented in part a positive market response to the fancy products the company had recently introduced, like the new and extremely thin notebooks that immediately caught the customer's attention. "If people have compared us to Mercedes, now we're closer to Jaguar," he claimed.
According to Jurkovič, IBM's emphasis on high-end IT equipment was the biggest difference between The Big Blue and Compaq. "Compaq covers the whole scale, from the bottom to the top," he said. "We emphasise the standard character of our products, which might be different from IBM."
Despite their different product portfolios, Jurkovič said, IBM and Compaq were fighting for basically the same customers in Slovakia - banks, financial institutions, utilities and telecommunications companies. Only on the small consumer market, where Compaq plays a substantial role, could a difference be distinguished.
Given their orientation towards 'big projects' and larger customers, both IBM and Compaq are careful to emphasise the sophisticated services they offer.
"We don't usually provide only PC's, but also servers. We stress complexity, service and overall quality, and we often involve our business partners in providing services to our customers," said Majoroš.
"Compaq, after its acquisition of Digital, offers an entire portfolio of customer services," echoed Jurkovič, "from the architecture proposal for the system through deciding on the most appropriate components and installing and servicing the system."
9. Nov 1998 at 0:00 | Slavomír Danko