Wal-Mart Expected to Sell Own-Branded Notebooks in 2004

by Sam Bhavnani
Senior Analyst, Mobile Computing

The Taiwan Economic News is reporting that Wal-Mart will sell house-branded notebooks in the US next year. According to the article, several tier one contract manufacturers are scrambling to win large orders from Wal-Mart.

Wal-Mart will place an initial order for 100,000 notebooks from Taiwan-based Arima Computer Corp with Wal-Mart targeting 1Q 2004 as the introduction date. Arima has not confirmed the report, which was leaked by the ever-familiar "industry sources."

The retailer only recently began selling notebooks this past summer, with a quiet release in select markets. Up until this summer, Wal-Mart had only offered notebooks on its e-commerce website.

As a point of comparison, Wal-Mart generates approximately $250 billion in annualized revenue; Dell generates approximately $50 billion and HP generates approximately $90 billion. Wal-Mart has approximately 2,500 stores and 456 warehouse clubs (Sam's Club) in the US alone. It employs just over one million people worldwide (800K in US and 200K overseas).

The retail giant is clearly aiming at Dell and is also attempting to elevate its profit margins in one of the fastest growing categories within the consumer computing space. The retailer has become an economic force through its low-pricing policy and it will continue that policy in the mobile computing space.

This move will further drive down notebook PC prices, particularly at the low-end.

Wal-Mart's RFQ set off a flurry of bidding activity from contract manufacturers such as Arima Computer, Quanta Computer, Compal Electronics, and Wistron Corp. Arima, who has reportedly won Wal-Mart's initial " test" order, lost HP, one of its largest customers, earlier this year.

Wal-Mart will enter the market by offering one or two SKUs initially, testing market and consumer reaction.

One important question is how Wal-Mart will brand this system. Best Buy's effort at branding computers resulted in the brand name of VPR Matrix. A move that duplicated a well-known strategy by retailer Costco which brands its house brand products with the "Kirkland" label, thus making customers think that Kirkland is a separate entity from Costco. ARS would be surprised if Wal-Mart branded the system with the "Wal-Mart" and thus ARS expects that Wal-Mart will create a third party brand name for the new products. The Taipei Times is reporting that Wal-Mart will use the brand-name "Avail" for its notebooks.

Detailed specifications of the Wal-Mart branded notebooks are not known, however, Arima manufactures systems using both Intel and AMD processors. ARS believes Wal-Mart will enter the market with a 15" system at a sub-$800 price point.

Below are pictures that will give a general look and feel to Arima's current 15" systems.

Possible configurations for the new Wal-Mart notebook will likely utilize either an Athlon XP or Intel Celeron processor with the following configurations listed below. In addition to the Celeron and the Athlon, ARS believes that a P4 configuration may also be possible.

Who does this impact?

Major retailers -

Retailers such as Best Buy, Circuit City, CompUSA, Staples, Office Depot, Office Max, and Costco will be impacted by Wal-Mart's increasing efforts in the mobility space.

The high-end of the notebook market will remain secure and will continue to grow for the major retailers. However, sales of value SKUs (sub-$1000) will slip as customer's flock to Wal-Mart.

Bottom line - Major retailers will lose sales of volume low-price SKUs when Wal-Mart offers branded notebooks.

Major notebook vendors / direct players-

Major notebook vendors, such as HP, Dell, Sony, and Toshiba, all need to pay careful attention to Wal-Mart's actions in the value segment of the notebook space.

HP and Toshiba are likely to be the most impacted due to the fact that both manufacturers have a considerable focus within the low-end notebook market. Additionally, HP will likely be affected due to the fact that Wal-Mart is currently test marketing HP notebooks. HP was likely hoping that the Wal-Mart test of HP notebooks would result in Wal-Mart rolling out HP notebooks to all stores. However, Wal-Mart's new plans of providing a branded notebook puts those expectations into question.

Dell's low-end notebook space (Inspiron 5100 and 1100) may be adversely impacted by Wal-Mart's offering of its own-branded notebooks. Dell exerts considerable resources to target the "average American" through television advertisements, newspaper inserts, and magazine advertisements; Wal-Mart's core strength is selling to the "average American." Wal-Mart's entry will force Dell to increase the visibility and reach of its already vast promotional campaign.

Bottom line - The good news for Dell, HP, Sony, and Toshiba is that Wal-Mart will initially (next 12+ months) only compete in the consumer value-segment. It will not compete in the fast growing high-end of the consumer notebook segment and will never be a corporate play.

Critics -

Critics will point out that Wal-Mart does not have any experience in the computer industry and that CE giant Best Buy offered its own-branded computer products (VPR Matrix) in the past and has largely given up on this project. Critics are correct on both fronts; however, Wal-Mart's financial muscle will enable it to secure very competitive pricing from the contract manufacturers. There is a reason all of the contract manufacturers are scrambling to win Wal-Mart's business, and that is each of the manufacturers understand the volumes that Wal-Mart will move.

Wal-Mart's potential entry to the notebook space in early 2004 will be yet another driver that will increase sales and penetration rates of notebook PCs.

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