HYPERTEC LAUNCHES AN 'AUSSIE' PC
By MARGARET BANAGHAN
Feb 26, 1996 – 11.00am

The company, long known for its add-ons, is confident that buy-Australian sentiment will help sales of its new range.

The crowded personal computer market has a new entrant. The Sydney-based, privately owned Hypertec, until recently known for its computer add-ons, has begun designing and assembling its own range of personal computers.

The demise of Australia's leading PC maker Osborne Computers in the middle of last year is still fresh in the minds of most Australian buyers. However, Hypertec executives are adamant that Osborne's receivership was a problem of management, not a reflection on the state of the market.

International Data Corporation's desktop analyst, Bruce McCabe, is confident of Hypertec's chances of success, although he believes the company will have to work hard to get a share in the already crowded market. "They already have a good grasp on the local PC market, which should hold them in good stead. We are seeing local vendors doing very well when they have additional skills outside the PC, such as Ipex with its networking products. Hypertec has this extra knowledge, so it could go very well," McCabe says.

Hypertec was formed 12 years ago and built its reputation providing PC enhancements. Managing director Geoff O'Reilly says the company decided to enter the PC market because of the growing competitiveness of the markets for its network adaptor and memory upgrades. It is becoming harder to sell processor upgrades, because people find better economies in buying a new machine.

O'Reilly says: "This is the most significant move in the company's history. Investment in working and fixed capital this financial year is likely to be in excess of $10 million." Sixty more staff have been taken on, and by the end of the year staff numbers are expected to reach 180.

It has been a well-timed decision for Hypertec, following the commitment last year by the federal Minister for Industry, Science and Technology, Peter Cook, that the computer bounty scheme (which gives benefits to local assemblers and manufacturers) would not be phased out until 2000.

Stephen Hill, a director of The Christopher Company, a Canberra-based consultancy, says such schemes will help Australian PC companies to battle against the established multinationals. He says the Bevis report into Commonwealth Government buying policies had recommended adoption of endorsed-supplier lists, where local companies could gain access to huge government contracts, something that has helped to boost local industry. Local companies also benefit from the Partnerships for Development scheme, in which large multinationals have to contribute to local industry development.

Hill says that five years ago the Government was barely committed to buying Australian products. Now the industry has a chance of entering export markets because of such initiatives. Hypertec has already been given endorsed-supplier status for its PCs in most of the Federal Government's panel contracts.

Hill says this market is crowded, but points out that it was only five years ago that 140 desktop brands were being sold to governments, making today's 45 brands seem workable. Hypertec will mainly rely on a buy-Australian sentiment to fuel the growth of its new range of locally engineered and assembled PCs. The company hopes to increase revenue by 50% to $140 million by June this year.

O'Reilly says: "Clearly there is a large body of buyers who want to buy from an Australian company, especially the larger government buyers. We'll especially be targeting the old Osborne customers, as not all of them immediately went to Gateway [the US company that rescued Osborne out of receivership]. One of the reasons we've been so successful already is that we've been able to stand next to the non-Australian companies and have that over them, and this has certainly assisted us." He believes that about half the market has a predisposition to buy Australian products.

IDC estimates that Australian PC assemblers supply about 40% of the Australian market. Besides the buy-Australian sentiment, O'Reilly says, IDC will be able to grab some of this share through its existing reputation for PC memory boards and Ethernet and Token Ring networking cards, and its reputation for service and reliability after purchase. "Also, our prices will definitely be competitive, but they won't be the cheapest," he says.

The Hypertec business strategy is quite focused on its existing market: corporate and government buyers. It also plans to broaden its base into the small reseller sector. "We're not trying to be all things to all men like Osborne tried to do," O'Reilly says. "Our channel will provide add-ons to the end customer." It won't be rushing into the consumer and export markets until it succeeds in the local market."

The HyperFormance family, the initial range of PCs will contain Intel Pentium processors ranging from 75 to 120 megahertz. Within the three form factors, slimline, desktop and mini-tower, there will be a choice of memory ranging from eight to 120 megabytes, hard disk capacity up to 1.7 gigabytes and an optional network adaptor.

The manufacturing plant will incorporate work-to-order, as well as standard configuration output. The monitor size, memory, hard drive capacities and processor type will all be able to be changed at no extra charge. O'Reilly says the difference between his company and other Australian PC assemblers is that it designs the overall machine so it can offer a customisation service that is difficult for competitors to match.

An often contentious issue of the Australian PC industry is the amount of local content contained in so-called Australian PCs. Often the machines are fully assembled in Australia, but from imported components. One of the latest attempts at some Australian-based design and manufacture by an Australian-owned company was made by the ill-fated Osborne.

Initially Hypertec's Australian content will be limited to its existing memory and networking products, and research and design will be performed in Australia. The processor, hard and floppy drives and the semi-conductors for the motherboard, case, cabling and power devices, and other non-technical parts will all be imported. O'Reilly hopes to eventually manufacture the non-technical components in Australia through a third party. "Our first range will not have a Hypertec motherboard," he says. "We will start to incorporate our own by mid-year and the target is to make half of the motherboards ourselves." These would still incorporate imported chip sets. However, motherboards designed by Hypertec will still not be manufactured in Australia. "Australian management are not competitive enough to do it here. In Taiwan and similar areas they can service our small requests as they have the economies of scale."

O'Reilly does not seem concerned at having to compete with big players whose sheer size gives them a financial and market advantage. "Put simply, we'll have to live on smaller margins than the Compaqs of the world. They have the benefits of large procurements and therefore their cost of production is much lower. But they also have international distribution costs and much larger corporate overheads, which we won't have so we can afford to live on lower margins."

Because of its established relationships in the Australian market, Hypertec has a definite advantage over most newcomers to desktop computers. However, analysts agree that this crowded market will be difficult to crack. Hypertec's challenge should be able to differentiate itself sufficiently to succeed.

Illus: Hypertec's Geoff O'Reilly: "We're not trying to be all things to all men". Picture: Gary Ede.