São Paulo — Brazil’s personal computer market is seeing a shift in trends, experiencing a boom in orders from companies of all sizes as well as from governments for desktop models as workers return to their offices following the Covid-19 pandemic.
“The demand for computers is very strong, because people are going back to face-to-face work and are finding outdated computers, which have not been changed for two years or more,” Hélio Rotenberg, CEO of Brazilian computer manufacturer Positivo Tecnologia told Bloomberg Línea in an interview.
The trend is global, and will likely take personal computer sales levels back to close to 2021 levels, a year that practically equaled the 2012 historical record of 350 million units sold. In Brazil, sales growth will likely be limited however due to the expected drop in sales to individuals, as more expensive credit impacts consumer demand.
The Curitiba-based company is the largest PC manufacturer in Brazil, accounting for around 16% of domestic market sales, and which accounts for 70% of the sales of equipment in the under-2,000-reais ($366) category.
However, the company is depending less and less on the core business of personal computers, as a result of the execution of a strategic plan defined a few years ago in a bid to diversify revenues.
Some of the new areas into which Positivo Tecnologia has ventured are multi-brand services in corporate environments, a market with potential revenues of 10 billion reais ($1.83 billion) and which already accounts for between 20% and 25% of the company’s revenues, with expectations that its market share will increase.
The company has also ventured into the production and sale of servers for large companies, such as Petrobras (PPETR3, PETR4), as well as of smart payment machines for companies such as Cielo (CIEL3) and Stone (STNE), as well as the development of educational technology solutions.
The company’s financial results for second quarter are due in August, after the company reported profits of 28.4 million reais in first quarter, a growth of 6.9% over 12 months, and gross revenues of 1.2 billion reais, a 48% increase on the previous year.
Positivo listed on the Ibovespa index of the Brazilian stock exchange this year, although its shares have accumulated a 47% fall year-to-date, in line with the devaluation of most of the shares on the country’s stock exchange.
The following interview has been edited for length and clarity:
Bloomberg Línea: There was strong demand for electronics such as laptops in the first two years of the pandemic. Is that trend continuing? What does Positivo identify as new?
Hélio Rotenberg: The computer is still our flagship product, although it is no longer the only one, because we are already quite diversified, with various products. The demand for computers changed completely during the pandemic, reaching another level.
I remember that I didn’t take a computer on my trips anymore, because it had no function. I used the smartphone to answer e-mails. Now I am back to taking it with me when I travel, because it is more convenient to have a meeting on the computer than on the smartphone.
The computer has become personal again at home and at work. The fixed computer, the desktop, is being replaced a little by the laptop. Today the growth rate of the laptop is greater than that of the desktop. And this demand is still very strong.
The global demand for computers had peaked in 2012, with 350 million units, and which dropped to 250 million units in 2015. The pandemic brought that market back up to 350 million. It was only not higher last year because there was a shortage of components. Without that, there would have been more sales than in 2012.
It is projected that 2022 will be similar to last year in terms of sales, with a new level of computer consumption for all uses, both by individuals and companies.
Why will there be no more growth in the sale of computers?
This year, in Brazil, as inflation is very high, interest rates have risen nd credit becomes more expensive. Those who lend have turned off the faucets a little, for fear of default. The retail market as a whole has fallen, and the drop in sales of computers has followed in its wake. In other words, the sales figure is higher than in 2019, but lower than in 2021 in terms of individuals’ purchases.
By contrast, in the corporate market as a whole, including public companies, governments, and small, medium, and large companies, the demand for computers is very strong, because people are going back to face-to-face work and are finding outdated computers that haven’t been replaced for two years or more. There is a very big boom in the corporate market.
The shortage in the supply chain has affected sectors dependent on imported raw materials. How is Positivo dealing with these bottlenecks?
I would say that the worst is behind us. Not that it is totally normalized. But the peak was in August of last year, which was total chaos. It was very difficult to buy anything, and prices went up a lot. The market grew a lot, but it could have grown even more. The market has leveled off, with the production capacity of chip producers growing a bit. Prices today are almost the same as before the pandemic, a little more expensive, but not at the levels of August last year.
In terms of component availability, it is almost normalized. We are missing specifically one thing or another that faced some problem because there were several sectors consuming them. But the issue of transportation, of logistics, is still complex. Since China is closed [because of lockdowns in a bid to stem the spread of new waves of Covid-19], there were queues of ships waiting in the port of Shanghai for many weeks. But we are noticing an improvement every day.
How did this situation affect Positivo?
Freight from China or Taiwan to one of our factories in Manaus, which used to take 50 days, took up to 80 days. And now it is 70 days. We believe that, in two to three months, it will be back to normal. The peak of freight costs was also in August last year, when it was five or six times more expensive than normal. Now it is 1.5 times more expensive than normal.
Positivo’s results show a greater weight of institutional clients as revenue source. The company will supply, for example, ballot boxes for Brazil’s presidential elections this year and for elections in 2024. How are your delivery schedules?
We are on schedule. We have to deliver 225,000 new ballot boxes out of the 570,000 that the [electoral authority] TSE says it will use for the 2022 elections. We have already delivered 206,000. We should complete the delivery this month. And we won another bid for 176,000 ballot boxes for the 2024 elections, which we will deliver throughout 2023 and maybe a part of it in 2024. This was the first time that a 100% Brazilian company won this bidding process.
Positivo has also licensed foreign brands such as Compaq for sales in Brazil. What have been the results?
We have three brands for the final computer consumer: Positivo, Vaio, and Compaq. For the corporate sector, we operate only with the Positivo brand, and it is doing very well. Our Positivo brand was developed with the large Brazilian retailers. It is the best-selling computer in [Brazilian retail outlets] Casas Bahia, Magazine Luiza and Lojas Cem. It is one of the favorite brands of the middle class, according to research.
But for the, let’s say, more affluent class, which travels to the United States and knows Apple and other brands, we are not the favorite. We looked for a brand so that we could have significance at the top of the pyramid and we brought Vaio to Brazil, which is Japanese and they inspect all our production for quality. We rebuilt the brand in Brazil, and it is doing very well. We realized that there was a space in the middle, between the Positivo and Vaio brands, starting with laptops costing 3,000 reais ($550). We licensed the Compaq brand for Brazil.
In smartphones, we are adopting a similar policy. With Positivo, we are one of the leaders among the devices with a cost below 1,000 reais ($183), a price range for classes C and D. To reach a richer social class, we licensed the Infinix brand, which is one of the best-selling brands in the world. The group that owns Infinix is today the fourth.largest smartphone producer in the world. The results are encouraging: we launched in October last year for some tests and for real in April this year.
5G technology has started to be adopted in the country. How does this affect Positivo’s operations and how do you intend to ride this wave?
5G affects several of our products and our business areas. We talk about computers and smartphones, but we also have servers and payment machines. The Infinix brand came at the right time. 5G has one advantage over 4G: It has a speed equivalent to that of wi-fi in the home. You don’t notice the difference: You go into your home and can continue with 5G.
But on the servers there is an even bigger impact. With 5G, there is a lot of talk about edge computing, computing at the edge, because the entrepreneur picks up on the server right from 5G and automates their whole industry based on that signal. They put the servers at the edge, close to where the area that will be automated is, in order to avoid any kind of delay.
As has happened in markets that have 5G developed, we believe we will sell many servers of a different nature, for companies to capture 5G and do all their internal processing in a manufacturing facility, for example.
How is the company preparing to meet the demand for 5G?
It is about business line extensions. The conversion of production to meet 5G will happen naturally. The demand will increase slowly and we will accompany it and change our models. I don’t believe there will be a sales boom because of 5G. It is a replacement of some products by others, some even with higher added value.
Positivo has a partnership with Stone for smart payment devices. Some analysts say that they will be replaced by new technologies. How can you adapt to this?
We entered into a partnership with Cielo, developing smart payment machines because we dominate a lot of the Android [operating system] because of smartphones. Cielo hired us to develop their smart payment machine. The new machine not only reads cards, but it can also do inventory control and a lot of other tasks. Cielo’s little blue machine is used to charge a bill at the table and also to order what the person wants. It is much more than a card reader. This is our new strength: smart payment machines.
The contract with Cielo was exclusive. Last year it ended. Then we started to sell not only to Cielo but we also signed a contract with Stone, and several other contracts are coming. According to research institutes, smart payment machine sales growth will continue for another four or five years. Then there will be an inflection point, and it will slowly start to decrease.
We realize that technologies coexist. There is still a period of growth in the sales of those machines, contrary to what one might think. People pay by proximity, by cell phone, but the security of the smart payment machine is still greater than something totally virtual.
Positivo is also investing in smart home and educational technology systems. When will those new areas have a greater representation in revenues?
In 2016 and 2018, when we did the strategic planning for diversification, the computer was at a certain level. But it grew a lot in the pandemic. The new areas have grown as well, but they are still not that big in relation to the whole. They represent 20% to 25% of revenues. They range from Positivo Tech Services, a division that provides multi-brand services, in corporate environments, which we launched this year and is doing very well, to servers. We have just delivered a huge server together with Atos for Petrobras.
The hardware-as-a-service segment, which is renting computers instead of selling them, is also growing, as well as Positivo Casa Inteligente, with our lamps, outlets and cameras for wireless automation. The educational technology area is also growing: we develop math and Portuguese software.
All of this as part of our strategic planning, and which we started in 2018, is taking shape and growing a lot. Since we believe that computer sales will not grow as much from now on, these other businesses will really be very significant by 2026.
How is Positivo dealing with higher component prices?
The hardware component cost represents the largest percentage of our equipment. For us, the exchange rate and the component cost are much more important than inflation, which only reaches 10% of the manufacturing cost and the indirect costs. The other 90% are components.
We had, on the other hand, a decrease in the US dollar cost of these components, because of the market balance. Therefore, we have not experienced strong cost pressure. On the contrary, prices fell this year. But, of course, the exchange rate affects us a lot. If it continues to rise as much as we have seen in the last few days, that will put pressure on costs.
What are the main investments you have planned?
We will continue to invest in factory expansion. But our biggest problem is not capex, but opex [operational investment]. Few people stop to think, but Brazil is the most distant country from the centers that produce components. It is the farthest from Taiwan, South Korea, and China. It takes 50 days by ship. It is the working capital you need: you buy, then it takes 50 days by ship, 10 days to clear customs, 15 days to produce, another 10 days to get to the receiver, and the consumer still takes 90 days to pay you. This requires a lot of working capital.
So we will continue to invest in working capital, in the expansion of plants, and looking at growth avenues and new businesses. If it makes sense to eventually do an M&A with some company that can hasten growth, in addition to investing in corporate venture capital. This year we are greatly expanding our investment in startups.
Translated from the Portuguese by Adam Critchley
