Industry and Technology
Positivo Tecnologia has a strong presence in the domestic market, registering a 16.6% share of the PC market in 2018, according to IDC, remaining among the sales leaders of a highly competitive market. The Company registered 939.2 thousand units sold in the year, which represents an increase of 18.5% over the previous year.
Considering that around 90% of a computer cost is pegged to the U.S. dollar, the foreign exchange rate represents one of the main pricing indicators in the Brazilian computer market. From 2017 to 2019, the average desktop price in Brazil increased by 22%, driven by the 21% appreciation in the U.S. dollar between the periods and higher average configurations, due to a smaller share of retail sales. Notebook sales moved up 10%, also fueled by the appreciation of the dollar. The increase in the share of corporate sales and more complex average configurations was smaller than the one recorded in desktops.
Handset prices fell due to strong competition between manufacturers, who provided significant discounts to end consumers between 2016 and 2018. In 2019, there was a slight increase in the average price, as the high smartphone inventory levels observed in 1Q19 were distributed in 2Q19, which helped increase the average price of these devices. In addition, several companies opted to upgrade the basic configurations of their smartphones, helping increase the cost of inputs and, consequently, the average price change in the period.
The availability of loans in Brazil continues to increase. In the first half of 2019, the volume of non-earmarked credit to individuals totaled R$1,018.0 billion, up 10.8%, according to the Brazilian Central Bank. This dynamic is especially favorable to lower income groups, as retail chains are one of the main providers of credit to these consumers.
As shown in the chart below, since April 2018, the exchange rate trajectory has been impacted by uncertainty about the Brazilian political scenario, which brought instability to the foreign exchange market and led to a strong appreciation of the dollar. The dollar reached R$4.20 in August 2018, accompanying the deterioration of other variables, such as sovereign risk (CDS), which reached record highs. As of October, the defined electoral scenario and the positive outlook for tax and social security reforms contributed to the beginning of a wave of optimism in the local market, as evidenced by the fall of the dollar from September 2018, which, however, remained at a high average rate until the end of the first half of 2019.
Employment and population income levels
After the evolution and prospects of improvement in social and economic indicators observed until 2014 turned into economic recession in 2015 and 2016, economic indicators began showing improvements in 2017 and 2018. The unemployment rate in December 2018 and June 2019 reached the lowest point since February 2016, at around 12%. The Consumer Confidence Index reached 93.8 points in 2018, closing the first half of 2018 at 88.5 points.
Factors that materially affected operating results
The Company’s financial situation and the result of its operations have been influenced by factors including unemployment and income levels, consumer confidence, credit availability, the competitive environment of the PC and mobile phone industry and the exchange rate.
The Brazilian computer market fell 1.8% in the first six months of 2019, compared to the same period in 2018. The reduction in consumption was mainly due to an increase in computer prices this year, with the pass-through of the new dollar rates and the expiration of tax exemptions for resellers, as well as the extension of deliveries to public agencies in the period, as a result of the renewal of mandates of the administrative teams at the federal and state levels after the elections. The market grew 7.5% between 2017 and 2018, pointing towards a long-term recovery from the crisis that reduced consumption between 2014 and 2016.
The mobile phone market grew 1% over the previous year, representing a normalization of consumption levels, following the substantial increase observed in this market in 2016 and 2017. It is worth noting that we continued to see strong competition between the three market leaders, which accounted for 80% of the market volume, in 2019.
The Company’s portfolio comprises desktops, notebooks, tablets, mobile phones and servers, with operations in the retail, government and corporate markets.
i. Retail Segment. In retail, we distribute our products in physical and online stores of the main Brazilian retailers (including tier-1 distributors, such as Carrefour, Magazine Luiza, Fast Shop, Via Varejo, Extra, Cnova, Walmart, B2W and Lojas Americanas, tier-2 distributors, such as Pernambucanas, Koerich, Bemol, Grupo Mateus, Lojas Cem, Zenir Móveis, Fujioka and Riachuelo and tier-3 distributors, such as Infoeletromix, Mundial Magazine, Haikai, Techstore, Koisa Nossa, Avenida Cell and Planeta Eletrônicos); however, our exposure to small retailers is still limited, which represents an opportunity to drive the Company‘s growth strategy. In 2019, physical stores accounted for 74.5% of retail sales, while the online channels contributed the remaining 25.5%.
ii. Government Bid Segment. In terms of the supply of computers to the public sector, we dominate the government bid market, especially between 2012 and 2015, when there were several bids from the Ministry of Education through the National Education Development Fund, although the Company has been operating in this market for more than 25 years.
iii. Corporate Segment. In the corporate market, we sell our products on a large scale to companies; our market penetration in this niche has grown substantially in recent years compared to historical figures. Our market share went from 2.2% in 2010 to 8.2% in 2018.
Our main advantages in our operating markets are:
Deep knowledge of the Brazilian market and middle-class consumers. We believe we have a unique knowledge of Brazilian middle-class consumers. We have been operating in this market for 30 years, which has allowed us to accumulate a deep knowledge of local markets and consumer needs. We have created a leading brand in terms of market share, with wide acceptance in the Brazilian middle class, enabling us to enter new markets at a faster pace.
Strong relationship with distribution channels. Our presence in the main national retail chains and more than 10,000 accredited retailers, totaling over 12,000 points of sale and presence in the 100 largest Brazilian retailers, provides greater geographic coverage and capillarity, enabling us to reach consumers with different profiles.
Leadership in the government bid market. We have been the leader in the Brazilian bid market for over 10 years, having supplied state-owned companies such as Caixa Econômica Federal, Banco do Brasil and Petrobras, as well as the judicial, legislative and executive branches of federal, state and municipal government. In order to operate in this market, we comply with the highest corporate governance and compliance standards.
Proven experience in product and market diversification. In our history, we have proven our skills and expertise in developing computers, mobile phones, servers and IoT devices adapted to Brazilian consumers, as exemplified by the partnership with Google to launch the first smartphone in Brazil with Android Go and the first feature phone in Brazil with a button dedicated to Google Assistant. Our team has extensive industry experience and knowledge, and our CEO has been elected eight times the best CEO of the IT sector in Brazil and is among the nine executives from all sectors who received the most Valor Econômico awards.
Leading infrastructure in Brazil. Our production infrastructure is one of the largest in Latin America, with industrial plants strategically located in Curitiba and Manaus, and a clean manufacturing process, as we are committed to the preservation of the Amazon. We also have an after-sales structure comprising the largest technical support network in Brazil, with over 250 accredited companies. The geographic distribution of our plants increases our logistics and tax efficiency and enables a wide service network covering all Brazilian municipalities.
Unmatched product development and R&D capability. We devote large amounts of resources to R&D investments in order to adapt products to Brazilian consumers. More recently, we have supported startups such as Agrosmart and @Tech. Since 2009, the Company has invested more than R$500 million in R&D. We also have offices strategically located in the world‘s major technology hubs (Shenzhen and Taipei), and we are the only company in Latin America that can develop Android directly with Google.
Our main growth strategies are:
Strengthen our core business, increasing computer and mobile phone sales: We believe there is potential for increasing the sales of the Company‘s computers, smartphones and feature phones, despite our already high market share. Our price positioning, with most computers priced under R$1,300 and mobile phones priced under R$600, is attractive, especially considering the recovery of the Brazilian economy.
Success in new government bids: We have maintained a high success rate in the bid market, which is recovering on the back of the country‘s improved economic outlook and the Brazilian government‘s pro-market agenda. Our flexibility and agility in adapting our products to bid specifications (something international players cannot do with the same agility) is a competitive advantage that will contribute to our growth in the sector.
Structural growth projects: We are carrying out new growth projects, focusing on tier 3 retailers (small retail), hardware leasing to companies, smart home and the consolidation of our presence in the server market. These new projects will complement our core business over the next few years.