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By | Tim Phillips 18th July 2006 13:46

Elonex: the end of an era

IP riches sustain founders

Analysis The reaction of many people in the PC business to the news that Elonex Plc (UK) was in administration was a shrug: Elowho?

Elonex logoThe brand name and some assets of the veteran PC were picked up last month by Afics, a cartridge recycling firm, which is still mulling over whether it will sell Elonex-branded PCs. So now seems an appropriate time to take a look at Elonex's achievements. Veteran computer journalist Tim Philips takes a walk down Memory Lane.

In recent years, Elonex has had to settle for a supporting role in the PC business as another of the UK's long line of nearly-men. It's easy to forget for a while in the 1990s, it seemed that Elonex was on the verge of matching IBM, HP and Dell.

Founded by German-born Israel Wetrin in his Finchley flat in 1986, Elonex rode the PC boom better than any other UK manufacturer. Wetrin's company was named by taking the last two letters of his sons' names (Daniel and Gideon) and combining it with "Export", and that summed up his approach: a private family man who reinvested his profits, and his time, into obsessively building up Elonex.

By the end of 1993 Elonex had no external debt beyond a mortgage on its London office (soon to be paid off), a contract to supply the Ministry of Defence, 200 employees, was establishing its own manufacturing in the UK, owned close to 200 patents, and was planning to float "within 24 months".

When much of the UK's computer business was a bubble filled with hot air, Wetrin seemed to have built something more substantial. There was no fluff, and few surprises, sometimes even perversely so: in 1994 Elonex had turnover approaching £100m, but it didn’t have a marketing director.

And then, the company hired Jamie Minotto.

One-time advertising executive, one-time bit-part Hollywood actor, many times PC company managing director, Minotto was a strange fit for a company that had until then preferred to let its technology do the talking.

Minotto declared at the time that: "Elonex has the potential to be a world-class player. I want to get it to the position where if any company picked the top three on its shortlist, then it would pick IBM, Compaq and Elonex."

At the time, every Elonex job applicant had his or her handwriting examined by a graphologist. Minotto, we can assume, has very smooth handwriting.

If this was an attempt by Elonex to be flashier, more open like Dell - its direct-sales equivalent – in the US, it failed. Nine weeks later, Minotto had cleared his desk. Other high profile outsiders that had been recruited at the same time also soon departed. The message seemed to be that Elonex preferred to do things its own way, and went back into its shell. The IPO never happened. Elonex stayed true to its North London roots instead.

With hindsight, its decision to sponsor Wimbledon football club – an upstart, rough and tough bunch who surprised everyone by sustaining their success in the big league, was a perfect fit.

If Minotto's job was to change Elonex's culture, it was too big a job for anyone. Like Amstrad, Elonex had based its success on doing things its own way. Alone in the UK market, it had taken Dell's strategy of building to order and carrying small inventories of stock, and made it work.

Working on margins of around 20 per cent – those were the days – its direct sales channel wasn't the only part of Elonex which was innovative. In an era when PCs were known as "clones" for good reason, Elonex boxes usually contained their own proprietary technology.

The company had a reputation for talking up its technical nous too. In the early 1990s, PC magazines liked to run huge group tests, employing small armies of reviewers to pull apart up to 100 desktop PCs at a time in the attempt to find anything interesting to say about what were, for the most part, identical products.

The young pup who was allocated the Elonex PC in the test had a poisoned chalice. On one hand, the inside would contain some unusual proprietary gizmo to write about. On the other hand, woe betide the reviewer if he decided to give it a negative notice, because Elonex finance director Michael Spiro would probably soon be on the phone to upbraid him fiercely for not giving his company's innovative PC the first prize.

There was a case to make too. Elonex PCs were of an uncommonly high standard. The company was breaking into the corporate and government sectors: when the UK government approved 12 computer resellers out of 120 applicants for its National Grid for Learning in July 1999, Elonex was there. It had its wish, because the only other PC manufacturer approved for the UK's schools to deal direct with was IBM.

"We will not tolerate learning institutions being charged excessive prices or having to settle for second best," said education secretary Charles Clarke at the launch.

With more than a decade of unbroken profitability (not something Dell could boast), Wetrin was now one of the richest people in the UK technology business - in the 1997 Sunday Times Rich List, he had assets of £45m.

But bit by bit, this has slipped away. While Elonex could boast profits every year, its announcements carried more important information further down the page: each year margins were tighter, price competition more intense. The company diversified into more profitable areas. By 1999 it was offering consultancy, training, networking, even disaster recovery – but the time when Spiro would boast that "We may have to lose the luxury of being a privately funded company" in order to crack America had passed.

Elonex was, and always was, a regional PC supplier. And in the UK, that has not been a happy place to be in the last few years.

"In a nutshell, the PC market in the last two years has become much more concentrated," says Michael Larner, senior research analyst at IDC UK's PC division.

In 2004, the top 10 players had 69 per cent of the market, Now it's 80 per cent. The major problem for local manufacturers, he says, is a price war between Dell and Acer. "Also Lenovo is proving viable. The local players all have to think about niches," he warns.

For Elonex, that niche in recent years has been to back the idea of the Windows XP Media Centre PC. But that market has turned into a classic PC bust: "We looked back to 2000 to see articles proposing this as the Next Big Thing," Larner says.

It's still in that position. Without a clear definition of what one of these PCs actually is – and without a compelling reason to pay £1000 plus the price of a large LCD screen to put more technology in a living room which already might have an Xbox 360 or a Playstation 3 to browse the internet, then he doesn’t predict sales for Media Centre PCs will take off for at least another 12 months. It's clear that Elonex finances couldn't wait that long.

But if, as seems increasingly likely, we won't see the Elonex PC business again, Wetrin has left a legacy that may be far more significant for UK technology companies that will follow: Elonex owns a portfolio of more than 200 patents, property that has already realised more than £100m, and which will continue to do so.

Look for Spiro today, and you find him at the head of Luxembourg-based Inpro Licensing SARL. Look down the list of executives, and Inpro's CTO is a man called Dan Kikinis. It's Kikinis who was responsible for most of Elonex's innovative widgets. Inpro was set up to license IP, specifically the Elonex portfolio, though now it is looking for new material. If its success as the IP division of Elonex Plc is any guide, we haven't heard the last of Spiro.

The tradition of innovation at Elonex came about because of a hard lesson learned at the beginning of the 1990s. Forced to pay royalties to IBM for using its technology, Elonex decided that this was a fine way to build competitive advantage. "We decided to build our own armoury instead," said Spiro at the time.

In 1991, it began working with Silicon Valley-based Oakleigh Systems, where Kikinis turned out to be a staggeringly prolific patent factory. Renamed Elonex Technologies in May 1995, the company created and filed patents for every type of PC technology, from flexible keyboards to PCs that became scanners.

The portfolio has everything: "Smart phone integrated with computer system", "Apparatus and method for minimizing dram recharge time", "Method for collecting URLs from printed media" and, get this: "A PC peripheral interactive doll". Look it up on the WIPO database: WO9732300.

Kikinis was innovative in the best Elonex tradition: having "reverse engineered" (as he puts it) the patent filing process, he could do the basic work in a day, rather than the weeks or months that many companies took.

The big earners for Elonex were a series of patents filed in the US numbered 5648799 and 5389952, specifying how a PC would automatically switch to a low power mode.

When the Video Electronics Standards Association (VESA) adopted the DPMS standard for lowering power consumption, Elonex decided that its members – a who's who of PC and monitor manufacturers – had infringed Elonex patents. A cascade of law suits and licensing deals followed.

The result was a steady income stream for Elonex. In 1996 Hewlett-Packard has licensed its technology. In 1998 Hitachi did the same, becoming at the time the local agent for Elonex IP in Japan, licensing to other Japanese manufacturers.

In the late 1990s the company that used to be described as "secretive Elonex" became "litigious Elonex" as the company launched suits against Compaq, LG, Delta Electronics Inc, Amtram Technology Co, Kuo Feng Corp, Gateway, Lite-On Technology, Compal electronics, ADI Corp, Siemens, Mitsubishi, Viewsonic, Mag Technology, Packard Bell/NEC, Micron, and even its stateside big brother, Dell. Its licensees included Apple, Acer and Sony – companies that the Elonex PC business struggled to compete against.

As Larner says, for a local PC manufacturer to attempt to compete with Dell and Acer on price is a "false hope". But as Elonex as a PC brand disappears over the horizon, Wetrin, Spiro and Kikinis have created what potentially is a more sustainable business. Even if that business doesn't have factories, doesn't sponsor Wimbledon football club – and doesn't need a marketing director. ®

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