Olivetti's emphasis on PCs, services, and telecommunications provide short-term relief and may drive a turnaround: long-term challenges remain

Computer Industry Report, March 25, 1994

In addition, the company must contend with several major product challenges. On the hardware side of its business, Olivetti is just beginning to target the profitable and expanding market in PC LAN servers. The new SNX line is Olivetti's answer to products that hot companies like HP offer. Despite Digital's equity position, Olivetti's emphasis on Alpha AXP will not yield any returns in the immediate future.

Perhaps more important, PC margins are getting thinner every day. Although Olivetti's PC strategy appears sound, even an aggressive and solid strategy in a market characterized by such high levels of competition can fail. The company needs aggressive expansion of channels in- and outside Italy to drive volume in order to compete at the low-margin levels.

On the software side, Olivetti's technology emphasis is misaligned with market realities. For example, Olivetti's infatuation with NT belies NetWare's popularity. NetWare remains hugely successful in Europe, and Olivetti is a NetWare distributor. However, Olivetti seems to sell NetWare only reluctantly. As a result, it has had only limited success. This lukewarm support may affect Olivetti's ability to expand distribution channels.

Olivetti is attempting to expand its core business as well, with steady moves into multimedia and telecom markets. Its successful bid, along with its major partners (Bell Atlantic, Cellular Communication, Telia, Lehman Brothers, Pacific Telesis, and Mannesmann) for Italy's second cellular license has great implications. Olivetti' s bid received a big boost when a competing partnership (containing Germany's Mannesmann and the U.S.'s Pacific Telesis) joined the Olivetti coalition. The cellular license will stimulate its nascent Telecommunications Division. That, in turn, will increase the company's confidence as it becomes a player in the European wireless market.

Strong PC Offering, but Is It Olivetti's Salvation?

Olivetti's line of PC products is among the widest and deepest of the worldwide PC suppliers. Olivetti is certainly the richest of any European supplier and perhaps any non-U.S. supplier (with the possible exceptions of Acer and Toshiba). In 1993, Olivetti shipped 833,600 PCs. The company continues to demonstrate design strength, but questions about the cost competitiveness of an Italy-based manufacturer remain.

Olivetti enjoys a 24.0% share of the PC market in Italy. IBM has slightly less. Other suppliers are battling for the number three position with no strong leader yet to emerge. Outside Italy is another story completely. Olivetti has no more than a 6.0% share of any other country's PC market, except for Spain (10.9%), Denmark (11.2%), and Belgium (6.7%). But because Olivetti competes in almost every country, its Europe-wide numbers are fairly strong. It held approximately 8.4% of European shipments and 4.9% of their value in 1993.

Olivetti's PCs demonstrate the company's design strengths. However, it may be caught in brand-management hysteria. The company's six brands are aimed at different segments of the PC market, but some segments overlap. It is likely that eventually two or three of the brands will be subsumed by another brand as the lines between segments blur further. For example, the "price-driven" market, the small office/home office market, and the home/individual markets may not need three different lines of PCs forever.