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E-Tail Sales Burst Through The Rooftops

From the U.S. bellwether Amazon.com to the German catalog retailer Neckermann.de to HK.Yahoo.com in Hong Kong, online shops around the world are hoping for a holiday season of double-digit sales growth – a small beacon of light amid stock downturns, flagging tech spending and stagnant corporate sales.

Leading the charge is Europe, where some forecasts even call for triple-digit increases over last year.

“We have seen a growth rate this year in excess of 100 percent,” said Jon Prideaux, executive vice president of Virtual Visa Europe. “A given retailer might not see precisely that, but we’ve seen monthly sales increases of 18.5 percent, so a double or more increase over last year is very likely.”

European e-tailers are gaining over the pioneering Americans because more consumers who are relatively new to the Internet are in Europe, said Japp Favier, research director at Forrester Research Inc.’s European operations. The United States has fewer newcomers, so growth is somewhat flatter this year.

The German e-tailer KarstadtQuelle, the online arm of the Karstadt department store and Quelle appliances, says 30 percent of its online sales this year – which should come in at E1.2 billion ($1.2 billion), a 70 percent increase – are coming from first-time customers.

“The average time between first plugging in the computer and buying something is 18 months, and the first purchase is usually a CD or book,” Favier said.

Overall, Forrester expects that European online retail sales this holiday season will rise to E7.6 billion from about E4 billion, bringing the total for the year to E30 billion, up from E15.5 billion.

In Asia, the situation is more fragmented. Cultural nuances and logistical barriers do not always turn new Internet recruits into online shoppers.

For example, in Hong Kong and Singapore, Internet and broadband penetration levels are among the world’s highest, but online sales lag significantly behind Europe’s and North America’s. In China, consumers want to actually touch the merchandise to make sure it works before they buy, analysts say. But e-commerce is still gaining in markets like South Korea, Japan and Taiwan. While there is little religious significance to Christmas in much of Asia, the idea of a “holiday season” may be catching on.

“The fourth quarter is increasingly becoming a shopping season in Asia-Pacific,” Lane Leskela, a research director for Gartner Inc., said in a recent report. “Christmas has penetrated the local culture of many non-Christian societies as a gift-giving celebration.”

Hong Kong’s top shopping destinations are the Yahoo shopping and auction sites. Quinnie Ng at Yahoo Hong Kong said the sites had seen a 160 percent rise in total customers this year. But in actual numbers, she said, the base is small.

Peter Steyn, Nielsen/NetRatings director in Hong Kong, said: “People in Hong Kong and Singapore go online to browse, compare prices and functions. Then they hop across the street and buy in a shop.”

In Europe, retailers have matured somewhat on the Internet over the past several years, and consumers have gotten used to them.

“People are finding it more convenient to buy online,” said Brian Morris, who heads e-business for MasterCard Europe. “And with the move to the euro, it’s become easier to do comparison shopping with Web sites in different countries.”

Even in markets where credit cards are often spurned as a payment method – such as Germany, Italy, Japan and China – e-tailers are getting creative and consumers are responding. Amazon will send bills by mail in Germany and accept cash on delivery in Japan. Many Japanese customers buy online and have the goods sent to a 7-Eleven outlet, where they pay with cash.

“Some people actually bring cash to the office,” said Fritz Demopoulos, founder and former chief executive of Shawei.com and now senior consultant to NetEase.com in Beijing.

“We have seven different ways you can make payment, like bank wire transfers, debit cards, prepaid cards.”

Internet buying is still a small fraction of overall retail sales. And online sales are seldom net gains – they are sales that have moved from the store cash register to the personal computer. But purchases made online generally cost the retailer less to process than face-to-face sales. Even in struggling retail sectors, such as consumer PCs, this shift has been notable.

“Overall, sales have stagnated,” said Massimiliano Bancora, Web and marketing director for CHL, one of Italy’s largest computer retailers, “but sales initiated online have increased by 20 percent this year.”

Regis Brinster, Geneva-based interactive marketing manager for Iomega International, a computer-storage maker, said: “We launched online sales two years ago, and they have grown to about 1 percent of our total European sales. To achieve this level of sales so quickly on a supplementary channel, without investing in a call center, makes this really outstanding.”

To more effectively balance loads and keep peak drain on their systems to a minimum, European retailers have encouraged early shopping. Amazon’s sites, Iomega International, British retailers like Argos, and many others offer incentives such as free shipping for orders placed before early December.

“If you’re going to compete with the high street experience, you need higher levels of customer service,” said Ian Loughran, managing director of Blackstar.co.uk, a Belfast-based video retailer.

Blackstar meets with Royal Mail representatives to plan for peak delivery periods such as holidays or during the release of hot movies.

That everything works is especially important to first-time buyers. If things do not go as planned, the next sale will be much slower in coming.

On the other hand, too much customer service can be a hindrance, and Internet stores can answer that need, too.

“I don’t need sales help to buy a movie,” said Lee Evans, a Berlin-based travel consultant.

“On Amazon, I type in the movie name and buy it. I don’t have to fight the throngs. Then I can go downtown, stand in the Christmas markets, drink the mulled wine and look at the lights with my family.”

A Stock Index Primer

With stock markets merging and European Monetary Union a reality, European indexes – especially the sector-specific ones like our Tornado European Technology Index – will play a role more important then ever before.

Indexes help you decide whether or not a given stock is performing well. When you are deciding whether or not to buy a particular stock, you might want to compare it to other stocks of its kind. Indexes allow you to do this, because they provide an average of how, for example, a telecommunications company is performing compared with a group of telecommunications stocks on a specialized index.

Since 1998, Europe has seen the creation of dozens of new indexes, from market leaders such as Dow Jones, FTSE and MSCI (the world’s leader in institutional benchmarks), to newcomers such as TORNADO-INVESTOR.COM. And more are on the way.

“Fabulous,” says the investor, “but would someone mind telling me what all that means, why I should care, and more important, should I buy T-online?”

T-online? Maybe – check its performance against other telecoms on the Tornado New E300 to find out.

“I think Europeans will no longer look at investment as being national, but rather as regional or global,” said Mark Makepeace, Managing Director of FTSE. “You can no longer pigeonhole a company and call it, say, `British’ – look at Vodafone’s structure and you’ll see it’s truly a multinational corporation, so saying it’s a UK company just no longer makes any sense.”

As national indexes like the FTSE 100 and the CAC 40 become increasingly irrelevant, what is needed are indexes that allow the investor to gauge performance of entire sectors, in addition to indexes that track shares on a regional level.

To quickly ascertain the performance of high-tech companies across Europe, the investor can glance at the broad Tornado European Technology Index and see whether it’s up or down. But she can also then look at specific sub-sectors, such as computer hardware or mobile telephony, and examine the performance of companies engaged solely in those activities.

For the investor seeking an indication of stocks trading on a regional level, for example “all of EMU Europe”, an index like the DJEuroStoxx 50 gives a quick indication of the performance of Europe’s 50 largest publicly traded companies.

Who Uses Indexes?

Organizationally speaking, the DJ Stoxx, MSCI and Tornado European Technology indexes work broadly in the same way: they start on a humongous scale (“Most of what’s in Europe”, “Everything in the World”, “All Pan-European Technology Stocks”) and then break out individual sectors and regions as need be.

It’s a handy capability – want to see the average performance of shares from Belgian, Luxembourgish and Hawaiian companies involved in manufacturing for the bio-medical industry? Or the top pan-European companies in data networking? Poof! It’s as easy as asking.

There are literally hundreds if not thousands of indexes, and a fair question at this point is, “Why so many?” The answer is, for the most part, to serve as a benchmark for index-tracking mutual funds.

Among other things, index tracking funds have tremendous appeal to retail investors not yet comfortable with investing all their money on individual stocks, which result in high transaction costs and require rather subtle timing.

“For the retail investor, an index-tracking fund allows you to buy a basket of stocks in a sector or a region all at once,” Carsten Hilck, Fund Manager at Union Investment Bank in charge of the €4.3 billion UniEuroStoxx50, an index-tracking fund benchmarked to the DJ EuroStoxx 50.

“Stocks in Europe are primarily retail money,” said a senior Merrill Lynch official, “when you see all these funds out there, the end user is most often the retail guy, and at this stage in Europe, the retail guy’s concerned about some pretty basic things: knowing the names of the companies on the index, and of course how this index performs against other indexes.”

How the fund managers select specialized indexes on which to base their funds comes down to investment trends and fashion. For example, when Japanese automobiles were all the rage, marketing departments of banks and brokerages had a look and said, “Hey, let’s create a Japanese Auto Mutual Fund.”

They then went looking for an index that covered automobiles and had a sub-sector of Japanese auto makers, and use that index as the fund’s benchmark, buying stocks in precisely the same proportions as the index itself – index goes up, fund goes up. And, er, vice-versa.

“What’s especially appealing,” said Hilck, “is that all these funds allow individuals to diversify and invest in companies throughout a sector, with tremendous economies of scale There are very low transaction fees because the fund gets special conditions with brokers, and because we’re always 100% invested we have a fund that’s very close to the index itself – almost exactly a 1:1 ratio.”

The index authors reap licensing fees from the use of their indexes as fund benchmarks, so the more funds there are based around an index, the better the indexing company does. And the more funds and money invested in an index, the greater the accuracy of the index as a window on the conditions of the market must be.

The EMU Factor

Before European Monetary Union, European investors and funds were generally limited to stocks within their national markets, and the indexes that followed them – such as the German DAX 30, the French Cac 40, the UK’s FTSE 100 and Spain’s IBEX 35.

EMU’s single currency, the merger of national stock exchanges and the possibility of the UK and even Switzerland joining EMU, brings up the specter of rendering irrelevant such revered benchmarks as the FTSE 100 and the DAX.

That trend, linked with the technology to trade more efficiently, means that the intermediaries being squeezed, and that is precisely what is causing not just the stock exchanges, but also the investment banks to merging as quickly they can.

In the US, the benchmark index to the average retail investor is the Dow Jones Industrial Average. In Europe, though, investment cultures change and stock exchanges pop up everywhere you turn, and the attempt to find a clear “Pan-European benchmark” is difficult even a year and a half into monetary union.

“When you look at who will be ‘the’ pan-European benchmark,” said the Merrill Lynch official, “you’ve got to discriminate between the institutional side, which tends to favor MSCI, and the retail side, which is rapidly emerging to be the EMU-based EuroStoxx 50, which has seen tremendous growth.”

The DJ EuroStoxx 50 is a part of the Dow Jones Stoxx family of indexes, which also include Stoxx, a broad, pan-European selection of 600 companies as well as smaller sector indexes. Because of its relative simplicity and the fact that it follows only blue chips, the DJ EuroStoxx 50 has become hugely popular with retail investors, and is gaining some ground with European institutional investors.

Union Investment Bank’s Hilck says that they chose the EuroStoxx because his company felt that the EuroStoxx 50 achieved better performance recently than did the MSCI Europe – “Last year the DJ EuroStoxx 50 was the index to beat, so we’re sure that the investor really gets the highest benchmark out there,” he said.

Currently Dow Jones estimates that index tracking funds, which are particularly attractive to both retail investors and fund managers, have invested Euro15 to 20 billion in funds that track DJ Stoxx indexes in Europe.

But in the institutional arena, where the money really moves, DJ Stoxx has got competition aplenty from Morgan Stanley Capital International’s family of indexes, the belles of the ball when it comes to global indexes: about US$1.5 trillion is benchmarked to MSCI indexes around the world.

For its part, FTSE, inundated with pressure from the UK and abroad to emerge dominant in the London and Frankfurt Exchange merger, denies that its beloved FTSE will soon be irrelevant. “Clearly some new index is needed, but It’s just too early to tell what shape that will take,” said FTSE’s Makepeace, who added, “We’ll be introducing a series of technology indexes soon.”

TORNADO-INVESTOR.COM’s index is the first index to specifically address the pan-European high tech market. American investors have enjoyed the convenience of the Nasdaq, an index which lists high-tech, high-growth stocks in the USA, but until the Tornado European Technology Index, no truly Pan-European index solely devoted to technology existed.

The Tornado European Technology Index follows the 300 most important high-tech companies in Europe, and then subdivides then into 15 sub-sector indexes so that investors can see the movement of software, computer, mobile telephony companies and so on. Taken together, these companies have a more even momentum than individual share prices.

Weighting

Indexes proffer a benchmark for a “basket” of stocks which have something in common with one another. Weighting, or balancing the impact that companies within the list may have on the index as a whole, is the key to building an index that is useful as a benchmark.

In its humble pure form an index tracks the stock prices of a group of companies chosen because of the total value of their market capitalization. Weighting ensures that companies with high market values affect the index more than those with smaller market values. The index must account for the fact that the value of a 10% move on the price of the stock of a tiny company whose share price is €200 per share would be greater than a 10% move on an enormous company whose share price is €10, but that the effect of a 10% move on the stock of a large company would reflect market conditions far more accurately than the move on the small firm.

Put another way, a small move up or down by a listed giant such as Nokia would affect an index more than a large move up or down by a smaller company like Vaisala.

Of the major pan-European indexes, at least in Euroland (EMU Europe), the winner of the title of “pan-European benchmark index for the retail investor” has not yet emerged, but if you had to make a bet, the smart money would be on Dow Jones’ EuroStoxx50, which follows 50 Euroland “Blue Chips” – the largest companies by market capitalization.

Ericsson: Hothousing To The Core

The future is wireless, or at least that is what Nokia, Ericsson and a host of startups and network operators are earnestly hoping. But the quick success of 3G – The Third Generation of mobile telephony – is more than profitable icing for these companies; it has now become a matter of survival….

This article, which ran in the February, 2001 issue of Tornado Insider magazine, looks at the overall climate in European development of 3G, and then explores how each of Europe’s largest telecom networking manufacturers, Ericsson and Nokia, is coping with the challenge.

…………………………………………………….

It’s been a morning of suits and PowerPoint slides at the Ericsson demo center, and in the back row sits a pale Gen-Xer dressed head to toe in black and wildly thumbing away at his cell phone. He turns out to be Ivar Gaitan, a project manager for It’sAlive. After we listen to technical overviews of Ericsson’s Mobile Location Solutions, he stands up and shows us a location-based game his startup developed.

“BotFighters will launch this month,” says Gaitan. “It is a location-based game that people can play on their normal GSM phone. Using SMS, players determine who is in firing range and can fire…” A small beep is heard. Gaitan suddenly stops his patter and says, with an apologetic, but nonetheless delighted, grin: “Whoa… Sorry, my friend is 400 meters away and….” He begins thumbing madly on his keypad-entered “fire command.”

The game is, like Asteroids and Pac-Man before it, a triumph of simplicity. But by nature of its location-based, “find-your-friends” theme, it’s the essence of community building – that is, community building at 1.5 Swedish krona, or about 15 US cents, a pop.

These types of “small ticks” are music to the ears of operators, and therefore the holy grail of network vendor Ericsson, which bends over backwards to get products like this, or actually any product that works well with its systems and increases usage, to market. And these types of products are expected to drive 3G usage when it arrives.

“Ericsson’s been cooperating with us on both technical and marketing aspects,” says Tom Soderlund, It’sAlive co-founder. “They’ve let us into their labs and given us access to technical information, but we also have joint marketing activities, demonstrating our applications on their systems.”

Ericsson, of course, has venture wings, with $300 million in capital under management. But Ericsson’s strategy for hot-housing takes on several discrete, and sometimes even internally competing, roles. First, as with traditional hardware manufacturers, it attempts to open standards and technologies to developers, as would Palm, Psion, or even Nokia.

As with most hardware manufacturers, the process of getting into bed with Ericsson as a garden-variety application developer usually begins with the startup visiting the Ericsson developers’ website (www.ericsson.com/developerszone/), where it signs on for technical specifications. The technical information on the Developerszone is substantial enough that Swedish bank SEB – with an in-house IT team of 1,400 people that recently launched online WAP banking services – has almost relied on that alone.

SEB’s Bons says the bank launched with services based on the Ericsson R380, but that it was not an exclusive deal with Ericsson. “That was a launch device. When other hand-held devices, like PDAs, are released that are similar in size and ease-of-use to the R380, SEB will support those devices as well,” he says.

“It’s been a joint marketing effort. What Ericsson really gave us was understanding of how the whole puzzle works and the interaction of the whole mobile environment with vendors and operators. We know quite a bit about the Internet, but we are newcomers when it comes to mobile. Ericsson has really contributed to our knowledge,” Bons adds.

The decision to move beyond the Developerszone stage to solidifying the relationship could come from a number of instigators. It could be, as in the case of It’sAlive, that the VCs involved previously worked with a division or part of Ericsson, or it could also be that the startup demonstrates it can fill what Ericsson refers to as a “white spot” in its strategy.

These white spots, or opportunities, are key to a startup. “When we started at the Developerszone,” says It’sAlive’s Soderlund, “we received technical information and the like, but as the game evolved and it became more of a complete product, and as Ericsson saw how hot location services were becoming, we got more help on the marketing side.”

Today, when Ericsson demonstrates its location-based services, an It’sAlive gamer is right there to show a real, up-and-running practical use. “It’s too early to say anything about whether this has got us any contracts, because it’s just been released,” says Soderlund. “But I can say we’ve got lots of sales leads from the relationship.” That’s a piece of a white spot. But entire white spots? What’s coming down the pipeline?

“The area I think is really, really hot, is integrating wireless LAN with 3G solutions,” says Marie Bern, investment manager at Speed Ventures, which invested in It’sAlive. “When we get seamless access over wireless LAN, there will be a lot of new issues that have to be addressed.”

“How do you, for example, solve roaming between networks, owned by different players and based on different technologies? How do you solve billing, when all traffic is IP-based and the operator no longer controls every access point? Wireless LAN has the potential to turn wireless communication as we know it upside down, and there are huge opportunities for startups within this field,” Bern says.

Ericsson plays a crucial role in sorting out the white spot solution providers from the mere partners, taking internal and external projects it feels may someday become part of its core business. If it does, the company is absorbed into either Ericsson or Ericsson Business Innovation (EBI). If it doesn’t, Ericsson spins it out by partnering with a VC or other investors, building the business as an external company, then exiting at release.

The exit strategy seems to be the crucial difference. Where Nokia approaches the issue of external vendors with a shotgun strategy – if you throw resources at them, they will come – Ericsson can take a more vertical view of hot-housing and look upon each new vendor as a potential core Ericsson business.

Take, for example, Red Jade, which declined to discuss its product other than to say it relates to wireless technology and entertainment. Whatever it is, the company and EBI are working hard at it; Stockholm-based incubator IT Provider saw EBI’s role in it as not just crucial, but as deal breaking. “It’s definitely part of the decision to invest in a company,” says Jesper Korrbrink, venture manager at IT Provider. “With Red Jade, we needed a very high level of technological know how, and we and Red Jade had the impression that the business just could not be done without Ericsson. It involved technologies in which they lead.”

Sometimes the hot-housed company comes from the reverse process: the result of an EBI-instituted project that didn’t really fit into the core Ericsson business. EBI spins it out with the help of external VCs. Such was the case with ConnectThings, which also had investments from IT Provider. Fortunately, ConnectThings can say what it does for a living: It makes barcode readers that will be embedded in future handsets.

“The barcode reader is integrated with the phone,” says EBI’s Hoff, “and whatever is scanned triggers information on the product to be displayed. If it’s a drug, you can see what kind of drug interactions or side effects [it has] or how to use it. Or if you swipe a CD in the store, you can hear the song on your phone’s MP3 player.”

For a consumer to get product information by swiping a barcode in an ad as opposed to typing in a URL is a very different delivery method. It could be very useful for people and businesses, but only if it’s not platform specific. A key point when considering Ericsson’s hot-housing strategy is that the result needn’t be exclusively an Ericsson product. “We are looking at implementing the service with all the handset manufacturers. It’s not Ericsson-focused in that sense,” says Per Troborg, ConnectThings president. “Our vision is that all mobile terminals will have a low-cost, small-sized barcode reader integrated right inside.”

Infineon Breaks Losing Streak

Infineon Technologies on Monday posted a fourth-quarter profit, ending nine quarters of losses.

Infineon, the world’s sixth-largest maker of semiconductors, said net income was E49 million, or $56.5 million, compared with a loss of E505 million a year earlier. Revenue rose 37 percent to E1.76 billion.

For the year through September, the company reported a net loss of E435 million, compared with a net loss of E1.02 billion in 2002. Sales rose 26 percent to E6.15 billion.

“It’s good, but we fully expected this a quarter ago,” said Andrew Griffen, European semiconductor analyst at Merrill Lynch. “I can’t criticize what they’re doing – those who criticized them for investing heavily two years ago are now seeing those investments returning profits. But they’re in a tough industry, and their shares are overvalued.”

At the company’s annual news conference, Ulrich Schumacher, president and chief executive, cited cost savings through job cuts and outsourcing as well as an increase in the price of its core D-RAM products and reductions in its cost of producing them.

Schumacher said profit from the sale of Infineon shares in the Taiwan chipmaker ProMos had also added to the bottom line.

Fully 57 percent of revenue originated outside Europe, the Munich-based company said: 34 percent from Asia and 23 percent from North America.

Infineon also said it had become the third-largest chipmaker in the United States, overtaking Texas Instruments. Worldwide, Infineon said it had 4 percent of the market in semiconductors, up from 3 percent.

The company said it was on track to achieve its goal of 6 percent market share by 2007. It said that it expected demand for personal computers to increase in the current quarter and that the holiday season looked especially promising.

Peter Fischl, chief financial officer, said Infineon had set said E28 million to prepare for a possible adverse outcome of a U.S. Department of Justice investigation of price-fixing in the market for D-RAMs, chips that expand personal computer memory and help more programs operate simultaneously. Both Washington and the European Commission have been investigating any Infineon role in alleged price-fixing scheme.

Schumacher, asked about plans to move Infineon’s headquarters from Germany to a more tax-friendly country, said that the company was actively exploring the possibility and that it was not just a question of costs but also of productivity and speed to market.

“In our Chinese factories we are able to work three shifts per day seven days a week,” Schumacher said, adding that labor laws and work force costs in Germany constrain the company to work far fewer hours. “To ignore this is to imperil our very existence.”

Dell? He’s All Wrong In Europe…

To hear Hermann Oberlehner tell it, Michael Dell has got it wrong in Europe. “We’ve looked at this very carefully,” he said, “and in Europe outside the U.K., the Dell model just won’t work.”

This statement might ordinarily be dismissed as having come from a jealous also-ran. But Oberlehner is founder and chief executive of Gericom AG, based in Austria, which has quietly become the leading vendor of personal notebook computers in Germany. Last quarter, Gericom shipped 111,000 units in Europe, beating out such heavyweights as Dell Computer Corp., Toshiba Corp., International Business Machines Corp. and Acer in Germany.

In Europe overall, Gericom is the No. 5 vendor in mobile computing, according to International Data Corp., with a 9 percent market share.

“They are a very aggressive vendor in the consumer portable market, with a very strong focus on the lower-end consumer market,” said Stefania Lorenz, senior analyst for European personal computing at IDC.

But Oberlehner said he realized in the mid-1990s there was a hole in the European mobile computing space. As manufacturers struggled to make ever-slimmer notebooks for the lucrative corporate market, consumers were being left behind.

Gericom discovered that, with modifications, cheaper Intel Corp. chips designed for desktop computers would work in notebooks. While the company had initial quality control problems and a high rate of return – some say as high as 30 percent – new heat dissipation methods were employed, and the problems were worked out.

“Where before everyone had thought ‘smaller,’” said Ranjit Awtal of Gartner Inc., “Gericom asked, ‘Just how much mobility do you need to move your computer from the kitchen to bedroom?’

“They took risks when other vendors were reluctant. By providing a cheaper, slightly heavier and less mobile PC, Gericom actually paved the way for much of the mobile growth in the European home market today.”

By about 1996, Oberlehner, looking to cut costs and frankly tired of contending with retailers, took a hard look at Dell’s U.S. mail-order business and seriously considered emulating it in Europe.

“We tried to compete using the Dell model here in Europe,” said Oberlehner, who established Gericom in Linz in 1991, “but we discovered that we just didn’t need to – in fact, that it just wouldn’t work here.”

Of course, Dell has been doing just fine in Europe, with about 10 percent of the overall PC market, trailing only Hewlett-Packard Co.

Oberlehner believes that on the Continent, the customer’s buying experience differs drastically from that in North America. In Europe, customers prefer a more intimate sales environment, and they trust that salespeople have experience with the machines they proffer. The selection process is heavily geared toward comparison shopping by cost, brand and features, especially local-language and culture-based add-ons.

This, Oberlehner said, is unlike the experience in North America and Britain. “Americans are poor computer buyers,” he said. “They don’t look at specs – they look at the brand, the size, and buy. Dell works so well because the entire American retail system is set up with enormously costly pitfalls.”

Since no one cares about the specs, the logic goes, the sales team does not need – and often does not have – much information. Customers buy the name, and when they have a problem or the machine does not do something they need it to, they can bring it back to the retailer because of the generous U.S. return policies.

Oberlehner says that while profit margins in the United States are higher than in Europe so are costs. So Oberlehner stopped looking at retailers as adversaries and began seeing them as a symbiotic necessity: Where the retailers can provide marketing access to a customer base, Gericom can get the product quickly to market. As long as Gericom is willing to move quickly and provide post-sales support and service, the model works, he says.

But to succeed, he said, you must be willing to take razor-thin margins and produce using small teams working around the clock. Gericom, which outsources much of the assembly-line production of its notebooks to the Taiwan-based assembler Uniwell and some other Asia-Pacific companies, employs fewer than 300 people in Austria.

Gericom’s home-turf advantage also means that it can, for example, ship 7,000 units overnight to the main distribution centers for leading European retailers such as MediaMarkt, Lidl, Carrefour or Dixons without breaking a sweat.

And relying on local sales support and marketing initiatives rather than trying to centralize or even regionalize means that local buyers feel that the machines cater to them – whether the band name on the box is Gericom, Gerico, a Dixon line or something else.

“We can’t possibly compete with big vendors in the corporate market,” Oberlehner said, “where you have multinational needs. But likewise, the multinationals can’t compete with us in providing local support and computers that local people need. It’s not a question of price; it’s a question of tuning the products to meet the needs of each local market.”

Gericom keeps its focus on mobility. It was the first notebook maker to introduce a GPRS-enabled notebook computer, and it followed up with partly “ruggedized” notebooks aimed at the upper portion of its lower-end market.

Into the future, Oberlehner is counting on an “enormous potential” for replacing desktop computers with laptops in Europe. It cites research that says that fewer than 60 percent of German households own a computer, for example, and of those, only 15 percent have a laptop.