The summer of 1995 has been a very profitable one for a company called Glotur in Almaty, Kazakhstan.


Glotur multiplied its monthly personal computer retail sales at least fivefold in August and September. Specializing in more expensive foreign PC brands, Glotur usually has a small number of retail customers and makes most of its money selling to banks and government organizations.


However, once word got around that the company was offering a good deal, Glotur was flooded with an entirely new kind of customer. Individuals buying their first PC and small companies that would never usually consider buying an "expensive" foreign PC came to Glotur to snap up a bargain.


Glotur has IBM to thank for its success. The company's Moscow office has been able to supply Glotur with hundreds of PCs at prices previously never seen in the city.


In August alone, Glotur sold 400 IBM PS/1 and Value Point Personal Computers. At an end-user price of $960 (for specifications IBM PS/VP 486SX/25, 4/170/SVGA/0.28) these PCs were cheaper even than locally assembled models with comparable configurations. The company says there are many more potential customers ready to buy more of these PCs, but there is currently no more stock in Almaty.


Clearly, a large Russian customer failed to pay for computers IBM was ready to deliver and the company was forced to sell them off cheap. For PC manufacturers, unwanted inventory is anathema, since rapid advances in technology quickly render PCs obsolete.


Yet though this was a "stock clearance sale" in which IBM was making very little profit on each unit, this episode illustrates just how far IBM has been able to cut its prices.


That IBM PCs could have been the cheapest on the market in any part of the former Soviet Union 12 months ago was unthinkable. Two years ago IBMs had a reputation among dealers as being almost impossible to sell due to their high price.


Very roughly speaking, there are three price bands separating foreign PC brands sold in Russia.


PCs of IBM, Compaq, Hewlett-Packard and Digital command premium prices, the Dell brand is slightly cheaper, and the most popular low-price foreign name is Acer.


Other foreign brands struggle for market share in small niches in between these three price bands. Historically foreign brands were bought by state customers, banks and wealthy private organizations.


In general, but not always, Russian brands are cheaper than foreign ones. The overlap occurs with companies such as Moscow-based ASI, Kraftway which sell PCs configured similarly to Acer but at higher prices. Cheapest are the mass of "vanilla flavor" PCs assembled in Russia, which have no real branding at all. Due to their significantly lower prices, individuals, home users and small firms have usually bought Russian-made PCs.


With its recent stock clearance, IBM cut its margins on some models to such an extent that it was price-competitive even with Russian assembly companies. Though these sales in Kazakhstan were something of a fluke, IBM has shown it can attract buyers in market segments previously off-limits to foreign brands.


What was notable about this episode is that IBM supplied very low specification models which other foreign companies would usually not be geared up to sell. Most foreign brand-name PCs are available only in the most recent configurations taken direct from Western price lists.


By contrast, Glotur was selling mostly IBM PS/1 and IBM Value Point PCs based on Intel 486SX/25 processors, with 4 MB of RAM and 170-MB hard disk drives. These machines were mainstream models in the West two years ago and are inadequate to run the new Microsoft Windows 95 operating system. However, though this would be heresy in the West, it is barely an issue in a developing market like Kazakhstan.


Having proved a point this summer, IBM intends to continue on this path with a new line of low-cost PCs called the PC 100. Designed especially for price-sensitive markets like Russia, the PC 100 is a no-frills machine based on 66-MHz and 100-MHz 486 processors. The PC 100 is aimed squarely at the mass market, and has generated a lot of interest among dealers. Glotur especially is very interested in getting its first shipments.





Robert Farish is the editor of Computer Business Russia, fax: 198-6207, Internet e-mail: farish@sovam.com.