Whither Amstrad? paraphrases a question much asked in City parlours these days as the shares of so recently high-flying Amstrad Plc languish at well below 100 pence. In these dog days of summer the idle speculate that a merger could be conjured up between Amstrad and its equally bombed out biggest UK customer, Dixons Group […]
Whither Amstrad? paraphrases a question much asked in City parlours these days as the shares of so recently high-flying Amstrad Plc languish at well below 100 pence. In these dog days of summer the idle speculate that a merger could be conjured up between Amstrad and its equally bombed out biggest UK customer, Dixons Group Plc – whyever should Dixons want to start making the things it is already finding harder and harder to sell? Sounds even less likely than a resurrection of the negotiations under which Alan Sugar nearly became Lord Weinstock’s favourite and heir presumptive to the GEC Plc empire. Richard Branson Equally unlikely is that Alan Sugar will follow the lead of Richard Branson and take the company private: there is no love lost between Sugar and the City, but he is simply not a man to cut and run: his style is to stay, tough it out and confound his critics. Amstrad shares are languishing because its current strategy of carving out a strong position for itself in the business personal computer market has got off to a rotten start as the most attractive models in the new PC2000 line failed to make it to the starting line on time, and because repeated press stories that many of them were found to be missing many of their marbles has put off many of the people who might have majored on selling them, and many of the buying departments of the biggest companies, in which Amstrad must get a foothold if its new strategy is to succeed. The problem is not that Amstrad’s traditional retail market has gone away – that is still doing fine, and people still talk of buying an Amstrad when they mean an IBM-compatible personal computer. But Amstrad has fed its shareholders on a diet of endless and seemingly effortless high double-digit growth in turnover and profits, and as Amstrad has moved determinedly to improve the quality of its earnings, so the growth has dwindled to a trickle. So where does the company go from here? There is still plenty of growth to be had in the commodity personal computer business by entering new geographic markets, but that costs money and returns take a couple of years to feed through: that strategy will continue, but to get the share price bubbling again, something bigger will be needed. Amstrad also has the problem of the Single European Market to contend with: Sugar can now build one machine for the whole European market, but it is going to have to leap some daunting tariff barriers if it is not made within the Community. Amstrad has made a start by signing GEC Plessey Telecommunications to build about one in five of its machines at a pensioned-off telecommunications plant, but that is really only a stop-gap solution. Amstrad’s plunge into the business computer market has in part been derailed by the hiatus caused by IBM’s move to a new non-standard bus and operating system and the growing doubt that either will ever become a standard in the way that the Personal Computer bus and MS-DOS did: one of the tough rules of the personal computer market is that no company has set the standard for more than one generation and the nearest thing to a standard in the 80386 market is Compaq Computer’s Deskpro 386, but the 32 bit generation could well end up to going to a RISC processor and Unix; the jury is still out on IBM’s Micro Channel, but OS/2 and any derivatives now looks an emphatic failure. Flight to quality This has led to a flight to quality among buyers, which is why Compaq continues to flourish and why Amstrad is finding the business market an uphill struggle; there is little brand loyalty spillover from the audio, video and low-end personal computer market into the high volume business computer market. And that market is already moving away from Amstrad’s upmarket personal computers as Apricot Computers Plc’s flirtation with Sequent Computer Systems Inc makes clear. And there could lie one answer to Alan Sugar’s high-end problem. Apricot has its own personal computer plant in Scotland, which could be ramped up to produce Amstrad machines at low cost and in enormous numbers, and, equally impor
tant, it has a large accounts sales force and dealer network that talks nothing but business. Moreover Apricot’s frequent setbacks mean that the company more and more needs the security of being a part of a larger group. Is a bid for Apricot from Amstrad on the cards? It’s unlikely to be high on Amstrad’s list of options, but it is must figure on the list. Nor is Apricot the only company that Amstrad could look at: two further options to establish the company as a European manufacturer would be to persuade Thorn EMI Plc to sell Amstrad its contract manufacturing business, or making a move for AB Electronic Products Plc, which would bring to the party new products and skills in Amstrad’s next likely major business diversification telecommunications products. With computers accounting for well over half of Amstrad’s volume, the company can’t afford to quit the business overnight as it did when the bottom dropped out of the Citizens Band radio and video recorder markets. But one of the Amstrad specialities has been the combination of two desirable properties in a single product at the price of just one of them, the current example being the very competitive combined television and video cassette recorder. Personal communications And that is the change of tack that may very well be on the way for the Amstrad personal computer business: there would be a market for a laptop MS-DOS micro that includes a cellular phone, but even more interesting would be something to revitalise what has become a flagging facsimile machine market in the UK. A personal computer that includes facsimile board, a scanner and a laser printer mechanism, so that the thing has its own integrated printer and can send and receive faxes both electronically and on paper is the sort of integrated product that has helped make the Amstrad name in the past, and if it sells for little more than a straight personal computer, there would be a similar market for it to the one created by the Amstrad all-in-one word processor package. And the developments in telephony – particularly Telepoint and the proposed Personal Communications Networks present enromous protential for a company like Amstrad. Seeds are being sown for an entry into the telephone market by Amstrad, offering products manufactured for the company by Alcatel Standard Electrica SA safely within the European Community, in Spain. But that agreement is not yet solid, and will only really become exciting when telephone attachment liberalisation is enforced across Europe. And that won’t happen overnight, so although Amstrad should be well-positioned to clean up when the Single European Market begins to bite, that will not begin to happen until after 1992, so without an acquisition, the next couple of years are likely to exasperate impatient investors and test the nerves even of those of us backing the company for the long haul.