Percentage of assembly

Why Russian computer manufacturers don't care about idle conveyors

The huge underutilization of the capacity of Russian PC assemblers is an obvious fact; it is recognized by the manufacturers themselves. Nevertheless, new factories are being built. By the beginning of 2008, K-Systems/IRBIS had nine production lines in Vidnoye, two in St. Petersburg and four lines at the plant in Mytishchi (for assembling laptops). By the end of 2008, in the city of Gvardeysk, Kaliningrad region, the company will launch another plant - two of the planned 12 production lines, designed, according to media reports, for 1.5 million electronic devices per year. The largest part will be taken up by the assembly of desktops and laptops under the IRBIS brand (this segment brings 90% of the company’s turnover), the remaining capacity will be used for the assembly of servers and peripheral devices (currently the total capacity of the company’s factories is about 700 thousand units of equipment per year). A plant of the Chinese company Foxconn is being built near St. Petersburg. He will assemble about 500 thousand PCs per year for Hewlett-Packard.

Meanwhile, according to K-Systems/IRBIS’s own data, in 2007 the company sold “more than 200 thousand computers.” It is not clear why, with such sales volumes, spend money on launching new capacities.

In 2007, according to Gartner Group, Russian and foreign suppliers in Russia entered into contracts for the sale of 8.3 million PCs (including laptops). The market is growing at 6% per year.

Senior Vice President of Aquarius (a major player in the Russian PC market) Vladimir Shibanov says that “if the capacity is not used properly, it simply eats up the company’s net profit.”

However, all major players, without exception, have this capacity idle. The maximum capacity of the Kraftway plant is 1 million units of products per year. According to the company, in 2007, 293 thousand PCs were produced under the Kraftway brand. Depo Computers CEO Sergei Eskin admits that his company is capable of producing up to a million PCs per year. In 2007, it collected about 436 thousand PCs (8% of the market). RoverComputers did not disclose information about its production capabilities. They only said that “the plan is 240-480 thousand laptops per year, but in reality 250-300 thousand are produced.” According to Gartner, in the first three months, RoverComputers collected 113.12 thousand laptops.

This industry has a unique cost structure.

Computer assembly can hardly be called high-tech production. “Russian PC manufacturers do not grow crystals, do not produce LCD panels, chips, or even assemble mobile PCs,” says Acer CIS Inc. commercial director. Grigory Nizovsky. -- A plant for assembling desktop personal computers is not a blast furnace that cannot be idle. The land under it was acquired a long time ago and most likely inexpensively. The conveyor may or may not be running. Less work means less energy and staff costs. The most expensive component of such a plant in a normal case is the cost of storage of either components or finished products.”

In PC assembly, most of the cost is not created by hands - which is one reason that excess factory capacity does not harm the business. The main costs lie in the cost of components and logistics costs.

According to Sergei Eskin, the assembly process in the price of finished products ranges from 1 to 2%, depending on calculation methods. “It follows from this,” explains the general director of Depo, “that underutilization of the plant even by 50% will not affect production costs. Therefore, no one suffers due to underutilization of capacity.”

In other businesses, where added value occurs on the shop floor, downtime of workers and equipment is catastrophic, and managers fight for the percentage of capacity utilization. “And in the business of assembling computers, it will take more money and energy to organize this than the final effect,” says Mr. Eskin.

Another factor is uneven demand. “Orders are distributed unevenly throughout the year, hence the irregular production load,” Kraftway admits. “The second half of the year accounts for 70% of the annual volume.”

According to the general director of K-Systems/IRBIS, Eduard Voronitsky, the capacity of computer production plants - both here and around the world - is calculated for maximum seasonal load: “This happens all over the world, and there are no Russian specifics.”

It's easier for foreign suppliers. “The total volume of orders that our partners are ready to fulfill corresponds to the business plan of our company,” says Grigory Nizovsky. “If we talk about PCs and laptops of all brands owned by our company, then in 2008 this figure will be about 25 million units” (we are talking about the global, not the Russian market. - Ed. ).

Acer certainly has an easy time living its business plan. It has no factories in Russia. Russian specifics for Acer only appear when a buyer (say, a large chain selling household appliances) encounters problems with the tax authorities, which results in problems with payments to suppliers.

And yet, domestic assemblers are struggling with excess capacity. For example, part of the manufacturing may be contract manufacturing, which means assembling a PC for another company. Such orders are fulfilled, for example, by Formosa. Kraftway would also like to, but have not received any offers.

Both K-Systems/IRBIS and Aquarius are engaged in contract manufacturing. “To reduce costs, companies with excess production capacity sometimes act as outsourcers,” says Vladimir Shibanov, vice president of the Aquarius company. -- Smaller companies regularly place orders for the production of products under their brand at the factories of large manufacturers. This practice exists among both Moscow and regional companies. Similar orders are placed in Russia by foreign companies. “Aquarius also periodically resorts to this practice, producing products for both global brands and Russian companies.”

Achieving 100% capacity utilization is wrong, according to market participants. It is optimal when approximately 30% of free capacity remains. “This is a necessary reserve for prompt response to large orders,” says Mr. Shibanov.

There is indeed a possibility of urgent orders under government contracts, which can be measured in thousands and tens of thousands of PCs, and they happen more often at the end rather than at the beginning of the year. Sometimes factories work in two shifts.

If we are talking about a small company with a productivity of 100 thousand PCs per year, then 30% of the capacity reserve is not enough. But when more than 50% of production capacity remains idle, production becomes unprofitable. There are examples of this on the Russian market.

Thus, we can conclude that the underutilization of PC production enterprises is not evidence of stagnation of this market, but its characteristic feature.

Victoria MUSORINA, iToday.ru, - specially for Vremya Novostei