Meet The Continent's Mighty Midgets

The small fry battle the giants by selling ultracheap laptops

Squaring off against global computer giants like Hewlett-Packard (HPQ ) and Dell (DELL ) might strike fear into the hearts of the bravest entrepreneurs. But a handful of small European companies is doing just that, and with remarkable success. Their secret? Focusing on the sizzling market for notebook computers and offering ultralow prices. While none of the upstarts threatens to knock top-tier players out of the ring, they're grabbing enough market share to get noticed -- and to force down prices across the board, to the delight of European consumers.

Call them the mighty midgets. They include dynamos such as Gericom, based in Linz, Austria, which sells only laptops. The 13-year-old public company earned $3.1 million in profits in the first half of this year on revenues of $270 million. That's a fraction of the $3.89 billion in European sales Dell Inc. racked up in the first half. But Gericom has led the way in slashing prices by using cheap desktop PC processors instead of pricier mobile counterparts to build highly affordable notebooks. That has allowed it to claim the No. 1 spot in the huge market for consumer notebooks in Germany for two years running. The outfit reels in customers with products like the Hummer, which features a 2.2-GHz Intel processor, a 14-inch screen, a 30-gigabyte hard drive, and a DVD burner, all for less than $1000. "Notebooks are very trendy products, and we sold an enormous number last year," says Gericom's head of investor relations, Ingo Middelmenne.

Rival Medion is taking a different tack. Based in Essen, Germany, the company sells everything from laptops to home audio systems to answering machines. First-half profits reached $44.8 million on the back of a 15% increase in revenues, to $1.37 billion. Its strategy is the polar opposite of the built-to-order model perfected by Dell. Medion orders up giant batches of Asian-made computers with fixed configurations and stuffs them through the huge distribution networks of German retailers such as Aldi and Lidl. That's how the company sold 290,000 identical PCs in just two days during the 2001 Christmas season. With only 1,000 employees and virtually no research and development, Medion has operating expenses of just 5.9% of revenues -- 40% lower than even Dell can muster. "The strategy is all about short-term promotions," says PC analyst Chris Jones of researcher Canalys in Reading, England.

In Spain, one of Europe's fastest-growing PC markets, the No. 4 seller behind HP, Acer, and Dell is hometown hero Infinity System of Guadalajara, which sells laptops and consumer electronics under the name Airis. The privately held company had revenues last year of $218 million, up 22%, and expects another 24% jump this year. Researcher IDC figures sales of Airis PCs soared 31% in the year to September, thanks to rock-bottom deals like its $1,034 Linx 490, a Linux-based laptop powered by a 2-GHz Intel chip.

Will Europe's midgets survive competition with global giants? Medion and Airis are still managing to increase sales and build share in their home markets, but price pressure will probably wind up lopping 8% off Gericom's 2003 revenues. In Europe's rough-and-tumble PC market, everything can change in the blink of an eye.

By Andy Reinhardt in Paris

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