Gericom AG

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Gericom AG

Industriezeile 35
4021 Linz
Austria
Telephone: ( +43) 732-7664-690
Fax: +43 732 7664 113
Web site: http://www.gericom.com

Public Company
Incorporated: 1990 as S plus S Marketing, Engineering
and Computerproduction GesmbH
Employees: 296
Sales: EUR 539.88 million ($431.9 million) (2001)
Stock Exchanges: Frankfurt Neuer Markt
Ticker Symbol: GRO
NAIC: 334111 Electronic Computer Manufacturing; 334119 Other Computer Peripheral Equipment Manufacturing

Fast-rising Gericom AG aims to become Europe’s leading manufacturer and distributor of mobile computing and communications products. Based in Linz, Austria, Gericom has captured leading shares of notebook computer sales in much of the German-speaking market through its policy of selling competitively priced systems through the retail sales channel—including supermarketers Lidl, Metro, and others—as well as through its web-based channels. Gericom sells a wide variety of basic notebook computer configurations, which are then adaptable on a built-to-order basis. As with most of the company’s competitors, Gericom does not manufacture its computers, but instead contracts with third-party manufacturers such as Compal, FCI, and others, which provide the core computer systems. Gericom then finishes the notebooks in its Linz facility, adding price-sensitive components and customizing the computers for individual national markets. Approximately 70 percent of Gericom’s sales come from its Gericom-branded notebook computers. Gericom also designs and distributes portable digital assistance and so-called “pocket PCs,” LCD screens, complete “no-name” computer systems (which are marketed under such third-party brand names as Network, Highscreen, and other private-label brand names), mobile telephones, as well as major-name printers and accessories. Founded in 1990 by Chairman and CEO Hermann Oberlehner, Gericom went public in 2000 with a listing on the Frankfurt Stock Exchange’s Neuer Markt. Oberlehner continues to hold nearly 70 percent of the company’s stock, however. In 2001, Gericom generated nearly EUR 540 million; the company expects to double that figure by as early as 2003.

Big Fish in the Austrian Pond in the Early 1990s

Hermann Oberlehner had been working for Voest Alpine Stahl in the late 1980s, then worked briefly as CEO of a German computer manufacturer, when he became interested in founding his own company. Oberlehner’s idea was to produce not only desktop computer systems, but also low-cost mobile computer systems, a market Oberlehner predicted was to grow strongly over the coming decade. Oberlehner started up his company in Linz, Austria, in 1990, giving it the name S plus S.

S plus S began producing its first computer systems in 1991, assembling its systems from components manufactured by third-party suppliers. The following year, however, the company hit on an essential part of the strategy that was to help it become one of Austria’s leading computer makers before the middle of the decade. At the time computers remained expensive and had found little penetration into the home computer market. Most computer sales came through specialized computer resellers channels, which tended to feature prominent and international brand names, or through smaller integrators, which assembled individual systems based on third-party components. Instead, S plus S decided to pursue the consumer market, and in 1992, the company reached its first contracts to sell computer systems and equipment through the retail supermarket and appliance store circuit. Among the company’s earliest customers were such retail chains as MediaMarket, Saturn, Lidl, and Metro.

If most of the company’s products featured third-party and private-label brand names, a growing number of its products, and especially its mobile computers, began to feature a new brand name: Gericom, which stood for “Germany Industry Computer.” The expansion into the consumer retail market enabled S plus S to extend its product line, so that by 1993 the company boasted a full range of products from the low-end components to high-end systems. The company also began designing its own components. In 1993, the company began producing computer monitors through a plant in China.

With its sales growing rapidly, S plus S was forced to move to new facilities in 1994. In that year, also, the company decided to phase out its production of its own-label desktop computer systems (the company continued to produce computer systems for third-party and private labels, however) and refocused the Gericom brand name as a notebook computing specialist. This move coincided with the rising strength of the mobile computer market in general, as a new generation of processors, including the first generation of Intel Pentium processors, coupled with larger, higher-quality active matrice LCD screens, larger hard drives, as well as the preparation of Windows 95, combined to enable the production of notebook computers that were able to rival their desktop counterparts in performance.

Before long, “Gericom” had become nearly synonymous with notebook computers in much of the German-speaking world. By then, S plus S operated subsidiaries in Germany and Switzerland. Yet the company had also successfully expanded into the Eastern European region, with offices in the Czech Republic, Slovakia, Poland, Croatia, and Romania. Back at home, S plus S was gaining quickly on notebook computer industry leaders such as Compaq, Toshiba, and IBM.

By 1995, S plus S had posted more than 1.2 billion Austrian shillings (approximately $62 million) in sales. The company’s fast rise was aided in several key strategic elements. Countering the weight of its name-brand competitors—which typically commanded high prices for their systems—S plus S offered systems featuring competitive performance at far lower prices. S plus S also proved highly aggressive in being first to market with new components, especially new-generation processors. As a result, S plus S was able to boast of offering the fastest available notebook systems, often beating out its competitors by several months. If the traditional notebook-buying market, typically made up of corporate customers, remained brand sensitive, a growing new market of consumer purchases raced to S plus S’s performance claims.

Yet S plus S also was working to match its quality levels to those of its competitors. In 1995, S plus S reached an agreement with Kapok Computers, one of the largest manufacturers of notebook computers in Taiwan (and a supplier of basic systems to many of the brand-name systems as well). The cooperation agreement with Kapok now gave the Gericom brand not only a boost in quality, but in configuration flexibility as well.

European Notebook Leader for the 21st Century

The rising popularity of the Gericom brand name enabled S plus S to extend its own marketing channels. While the company continued to expand through the retail market, in 1996 it began targeting the small and mid-sized business markets as well. The company’s growing importance in German-speaking Europe and in Eastern Europe was underlined when it won a cooperation agreement with Intel on the development of the market for that company’s Pentium processors. The agreement enabled S plus S to become the first European notebook maker to feature the Pentium II processor in 1998. S plus S was also the first computer company to feature a notebook design with an integrated 15-inch LCD screen.

The Gericom range was expanded again when the company reached a manufacturing agreement with another major Taiwanese notebook computer maker, Compal. By then, a growing proportion of mobile computer product manufacturing had been turned over to a small circle of mostly Taiwanese manufacturers; most of S plus S’s competitors had adopted a similar product development policy of personalizing and branding the basic notebook computers produced by Compal, Kopak, and others.

By 1997, S plus S had topped EUR 138 million (approximately $110 million) in sales. By the end of that year, the company also had risen to challenge global leader Compaq as the Austrian market’s leading seller of PCs, with more than 60,000 desktop and notebook systems sold under the Gericom and third-party labels. The company also had begun to branch out from its computing specialty, adding a line of digital cameras, which, like its notebook computers, were targeted at the consumer retail market. By 1998, with sales rising to nearly EUR 230 million, Oberlehner, who continued to control more than 96 percent of the company’s shares—with the remainder belonging to other company executives—began planning to take his company public.

Yet those plans were put on hold in 1999 after an earthquake in Taiwan destroyed much of the company’s notebook computer supply. The aftershock devastated S plus S’s plans for growth; in that year the company limped to just EUR 235 million in sales. Nonetheless, the year did not hold only bad news for S plus S. In that year, the Gericom brand took the lead as the largest independent maker of notebook computers for the European market. A significant factor in claiming that title continued to be the company’s policy of being first to market with new components, including the Pentium III processor released in 1999.

Company Perspectives:

The perspectives: We plan to exploit the whole European market for our products and to establish the Gericom trademark synonymously with mobile data processing and communications in Europe; we aim to increase our position at the cutting edge of the rapidly growing mobile computing and communications sector and reshape the future market decisively; extending our role now and in the future as one of the leading business enablers in the field of mobile computing and communications, we will target new groups and markets along with our sales partners.

S plus S opened a new distribution channel in 1999 with the development of its first e-commerce sites, targeted at both the consumer and small business markets. The company also had begun to seek to capitalize further on the strong Gericom brand name. In that year the company reached an agreement with Palmax to develop a Gericom-branded personal digital assistant. The company also began designing an LCD-based desktop computer. Meanwhile, after producing one of the first notebook computers with integrated DVD drive in 1998, the company claimed a new first, launching a notebook model with an integrated CD-R drive.

By the beginning of 2000, S plus S once again was forced to expand its production capacity, adding a new facility in Linz. Yet S plus S had already begun to eye further growth, targeting in particular the French and U.K. computer markets on its way toward its goal of becoming one of Europe’s major notebook computer makers. In mid-year, the company put its plans for a public listing back on track, pledging to complete its initial public offering (IPO) by the end of the year. To prepare for this, S plus S converted to a limited liability company, then changed its name, to Gericom AG.

The collapse of the high-tech stock market in 2000 did not deter Gericom from making its IPO on the Frankfurt Stock Exchange’s Neuer Markt in November 2000. Nonetheless, the company was forced to satisfy itself with an initial share price lower than that for which it had initially hoped. The company also reduced the level of its initial free-float, releasing just 25 percent to the public (an additional 5 percent was floated in 2001). Nonetheless, the company could expect strong growth in its share price, matching its own revenue growth, which topped EUR 331 million for the year.

With the capital raised from its IPO, Gericom went ahead with its entry into the United Kingdom and France, maintaining its target on the retail consumer market. The company also was boosted by the successful launch of its digital camera models—Gericom quickly captured a leading share of Austrian digital camera sales. Meanwhile, Gericom’s notebook computer sales remained the company’s driving force, and by early 2001, the company had nearly extended its leadership position to the German market, in which it tailed only Toshiba in numbers of notebooks sold. Helping to boost the company’s sales was the launch of what the company claimed as the world’s first onegigahertz notebook computer.

Gericom continued seeking to expand its range of products, announcing its plans to release a new “pocket PC” handheld computer, as well as its development of a so-called “webpad” in conjunction with Abocom, expected to reach the market in late 2002. This latter device, which was expected to boast computerlike performance in a smaller, lighter format than traditional notebook computers, was seen as a particularly promising direction for the computer market in the coming years.

By the end of 2001, Gericom had made strong inroads into France and the United Kingdom, which together provided some 11 percent of the company’s sales. Germany remained the company’s strongest market, at more than 60 percent of sales, while Austria accounted for 20 percent of sales. Yet Gericom was already well on its way to becoming a “total European”brand.

By the end of 2001, Gericom seemed to have become a victim of its own success as a late-year surge in demand strained its production capacity. Yet the company was already taking steps to increase its capacity, investing as much as $60 million in a 40 percent stake of a new notebook manufacturing facility in China. By the end of the year the company had beat out its own sales forecasts, jumping to nearly EUR 540 million. With such strong growth, Gericom seemed likely to reach its revised target of doubling its sales by 2003.

Principal Competitors

Dell Corporation; International Business Machines Corporation; Toshiba Corporation; Compaq Computer Corporation; NEC Corporation; Fujitsu Limited; Acer Inc.; Medion AG.

Key Dates:

1990:: Hermann Oberlehner founds S plus S Marketing, Engineering and Computerproduction GesmbH in Linz, Austria.
1991:: Company begins production of the first desktop and notebook computer systems.
1992:: Company begins to distribute its own brand and third-party and private-label branded systems through the consumer retail sector.
1993:: S plus S expands its product line to include a full range of computer systems and components.
1994:: S plus S decides to focus its Gericom brand production on notebook computer systems.
1995:: Company reaches agreement on developing and manufacturing with Kapok Computer of Taiwan.
1997:: The company enters a product development and manufacturing agreement with Compal, of Taiwan.
2000:: Company changes its name to Gericom AG and goes public on the Frankfurt Stock Exchange’s Neuer Markt.
2001:: Gericom successfully enters the U.K. and French markets.