The Bloor Perspective: Letscutstaff.com, the euro bites back, and IBM's PC dilemma

This week, Robin Bloor and his team of industry experts look at the long-term prospects of one of the web's best-known companies, Letsbuyit.com, the neglected issue of euro conversion, and the rejigging of IBM's PC division.

Letsbuyit.com, the UK-based European online retailer, announced its quarterly results this week, and simultaneously revealed it was cutting 20 per cent of its staff. Letsbuyit has an aggregation-based model where it obtains discounts for customers based on bulk purchase. It primarily sells white goods, computers, and sports and leisure products and usually achieves discounts of around 30 per cent by dealing in volume directly with manufacturers. It had hoped to raise E130m (£80m) in its July flotation, but due to the general collapse in confidence in dot-coms, particularly in the B2C market, it only raised half that amount. It is now making adjustments to reflect the cash shortfall. The quarterly results, a pretax loss of E43.3m (£26.5m) on revenues of E7m (£4.2m) look more dismal than they are, and with the announcement of staff cuts, the shares rose 3.9 per cent - 12.5 per cent up on the float price. It is also beginning to cut back on advertising, having achieved a membership of over 700,000 and web traffic of 1.5 million visitors per month. So the burn rate has fallen to around E6m (£3.6m) per month. Thus it looks likely to run out of cash sometime in 2001, while its target point for profitability is the last quarter of 2002. It is therefore already seeking funding to cover the cash shortfall - which is due to the disappointing flotation. Letsbuyit.com is one of the European flagship dot-coms, which can provide a key to the e-tail market as a whole. While the likes of ClickMango.com and Nutrivada.com have been scrambling around for survival money and look as though they will probably sink without trace, Letsbuyit should have little difficulty in getting the funding it requires. But the next 12 months will be crucial. ** Don't forget the euro ** UK businesses are not as unaffected by the new currency as many seem to believe. Should the government decide to push for entry in the near future, a lot of UK companies could find themselves with a large and unwelcome extra change programme and an exacerbated shortage of IT skills. Much of the recent news coverage has been about the continuing low value of the euro against sterling and the US dollar and what the ECB (European Central Bank) might be planning to do about it. A week ago, the euro nearly fell to yet another all-time low against the US dollar. This week, the ECB is confidently predicted to raise euro zone interest rates on Thursday, probably by a half per cent to 4.75 per cent. A problem for the ECB is that it has to set a single rate for the whole euro zone, with growth in the major economy, Germany, apparently slowing while minor economies such as Ireland and Finland are booming. All this may sound like music to the ears of UK euro sceptics but such trials do not necessarily make UK entry less likely. Denmark goes to the polls on its own euro referendum at the end of September and what happens there may well have a strong influence on what happens here. And what's happening there is a sudden surge of opinion in favour of joining the euro zone. For almost a year, regular polls of Danish opinion have shown the country more or less equally divided between those in favour and those against but with an important 20 per cent undecided. The most recent and widest-ranging poll to date, however, shows opinion shifting markedly towards those in favour. With a month to go before the referendum, the pro-euro public have a 10 per cent lead over the anti-euro groups. But the poll still shows a 19 per cent floating vote. If Denmark does decide to join, as current portents suggest it will, and with Sweden very likely to follow, pressure is bound to build up for the UK to join too. Against that, the Bank of England expects the UK economy to continue to enjoy healthy growth and low inflation for the foreseeable future, even with the UK out of the euro zone. The arguments can be expected to continue for the next couple of years at least. But UK companies would be unwise to ignore them. Most UK companies are embarking on significant programmes of IT change to get to grips with ecommerce and some of these programmes extend a couple of years or more into the future. Add a sudden and unanticipated need to convert to the euro and they could be in big trouble trying to cope with it all. Euro conversion may be just a positioning issue for most UK companies at the moment but it wouldn't be a bad idea to have a contingency plan in place too to allow for euro conversion overlapping with other change programmes. ** Whither now for IBM's PC division? ** IBM keeps losing money on PC systems. One problem seems to follow another. Now, in an attempt to break the jinx, Big Blue has decided to move the personnel around a little. The new head of IBM's PC division is Adalio Sanchez, previously general manager for the ThinkPad range. In his new position, Sanchez is responsible for the manufacturing, procurement and business processes associated with running the PC division. Under his stewardship, the ThinkPad has become one of the most respected laptop products on the market and one of IBM's most successful products. He is expecting to make significant modifications to the manufacturing processes in addition to the cost cuts that have already been applied in the PC division. The timing, however, is a little unfortunate for Mr. Sanchez. IBM is currently failing to meet demand for ThinkPads and NetFinity products as a result of a shortage of a single component that is needed for the motherboard. This shortage, which is not expected to be remedied until mid-September, is exactly the kind of problem that Sanchez has been put into place to avoid - and it originated as a manufacturing problem. IBM has already admitted losing $250m in the second quarter as a direct result of this problem. The continuing shortage through the peak buying season is bound to mean even greater losses in the future. It has managed to maintain supplies of consumer models, however, which should ensure that it does not lose too much of the 'back-to-school' market. IBM really does manufacture some of the best PC systems available today. It is astounding that IBM has continued to lose so much money through poor organisation and supply chain management - one of the solutions its Global Services Division considers to be a strength. Let's hope the experience of Adalio Sanchez proves to be the catalyst to new success. For more analysis, see http://www.it-director.com