Germany: Pc Heaven For Consumers

An industry shakeout is under way as prices plunge

Andreas Kreutzer, a 39-year-old telecom consultant, heads into the Schadt Computertechnik store in Aachen, Germany, ready to bargain for a rock-bottom price. He's looking for a personal computer with an Intel Corp. Pentium II chip, 64 megabytes of random memory, and a 3.6-gigabyte hard disk. Wincing, the salesman offers a Schadt-assembled Proline computer for $890. Not good enough. Kreutzer heads off to check deals at rival stores.

The era of cheap computers has arrived. Machines selling for under $1,000, including value-added tax but excluding monitors, have grabbed a 30% share of Europe's retail market and are fueling a PC buying boom. Across Europe, PC sales soared 26% in the first quarter, compared with last year, according to Dataquest Inc. But the price wars are sparking a shakeout among PC makers and retailers--as they did in the U.S., where cheap PCs took off last year. Says Fujitsu Europe CEO Winfried Hoffmann: "Before this is over, there'll be a lot of blood on the table."

Much of the pressure is coming from surprising places. French and Belgian hypermarkets such as Carrefour and GB and German supermarkets such as Aldi Food and Lidl are selling PCs next to aisles of tomatoes. "The food stores use computers as loss leaders to get customers in the store," says Sami Ayoub, managing director of Maxima, Belgium's No.1 PC retailer. When Aldi recently offered a modestly powered computer for $600, the chain sold 100,000 units in two days.

While prices are sinking everywhere, the fiercest battle is in Germany. Here, retailers sold 1.25 million PCs in the first quarter. Two-thirds were unbranded clones. Over the same period, Compaq Computer Corp., Europe's market leader, grabbed only 8% of German PC sales, vs. 17% in Britain. Some companies are surrendering. Siemens-Nixdorf recently sold its PC manufacturing plant to Taiwan's Acer, while the Netherlands' Tulip declared bankruptcy.

TOUGH TIMES. The competition has apparently hit Germany's 4,000 clonemakers. Industry wags say Vobis, the top player with more than 19% of the market, has been put up for sale by its owner, the retailer Metro. Vobis "can't run loss leaders like Aldi," says Dataquest analyst Thomas Reuner. Vobis and Metro officials decline to comment. Analysts also question whether Vobis and other clonemakers can afford to build and retail PCs in this market. "You have to be an assembler or a retailer, not both," says Maxima's Ayoub.

Meanwhile, in Aachen, consultant Kreutzer decides against buying the $890 computer at the Schadt store. "I found a similar configuration $150 cheaper down the street," he tells the salesman. In today's European computer market, the consumers are the winners.

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