MDG attracts eyes of big PC vendors

White-box personal computer seller MDG Computers Canada Inc. has not only caught the attention of consumers, but the eyes of the dominant computer vendors with its splashy newspaper advertisements.

"The big boys have taken notice," said Eddie Chan, a research analyst at IDC Canada Ltd., which tracks PC shipments forvendors such as International Business Machines Corp., Dell Computer Corp. and Hewlett-Packard Co. "They're on their radar."

The "big boys" are curious because white-box PCs -- local brands of computer systems -- represent a sizable chunk of the overall consumer desktop PC market, and closely held MDG is one of the top five players in this space, according to Evans Research Corp.

Other leading white-box vendors include Richmond, B.C.-based Seanix Technology Inc., Guelph, Ont.-based EMJ Data Systems Ltd. and Markham, Ont.-based IPC Solution.

PC giant Dell, for one, is more than just curious, having recently announced that it will enter the white-box market that makes up roughly half of the total PC market in Canada.

According to Evans, total PC sales in Canada in the second quarter were 672,500, of which 343,500 were white box. In the second quarter, MDG had 12 per cent of the Canadian white-box market and 7 per cent of the overall desktop PC market, said Michelle Warren, an industry analyst at Evans.

That's not bad for a company founded 10 year ago by 41-year-old immigrant Goran Varaklic, who began selling computers through classified ads from his apartment.

"It's normal that they're interested," Mr. Varaklic said in an interview from his Mississauga office. A fresco of an angel from his Serbian hometown of Prijepolje is a daily reminder of his Balkan roots. "We think we have a winning model."

MDG now has 24 stores, 19 in Ontario and four in Montreal, which opened last month. The company is also testing the U.S. waters with the launch of a store in Buffalo, N.Y., in July. If that pilot store goes well, the company plans to roll out six stores in Chicago before Christmas.

Unlike traditional PC manufacturers, which rely on so-called value-added resellers and retailers to distribute their hardware, MDG runs its business like a franchise, an approach it calls the direct-through-store model.

More simply, MDG buys components in bulk from numerous suppliers, including chip maker Intel Corp., graphics chip maker ATI Technologies Inc. and software giant Microsoft Corp. It builds the computers and sells them under the MDG label for a markup to its franchise operators, which own the stores and employ their own salespeople.

But the decisions about marketing, branding and customer support are centrally made, Mr. Varaklic said.

"The stores are used as points of distribution and a service centre," he said.

The suppliers also help MDG by contributing money, which allows the company to advertise aggressively several times a week in major dailies such as The Globe and Mail, the Toronto Star and The Ottawa Citizen, Mr. Varaklic said.

One MDG salesman said he tries to meet a quota of four computer sales a day. Based on that information, the stores, which employ about 150 salespeople and 150 customer support workers, could sell at least 3,000 computers a week or 156,000 a year. Mr. Varaklic, who declined to provide shipment or sales figures, deferred the issue to Evans Research, which is projecting shipments of 200,000 to 250,000 from MDG this year.

MDG also sells its computer hardware on The Shopping Channel -- a media asset owned byRogers Communications Inc. -- which features merchandise for television viewers to buy. It sells about 6,000 to 7,000 units a year through that channel and considers the venue a branding tool, since the show appears across the country, Mr. Varaklic said.

MDG is also trying to land corporate deals. It recently won a contract to supply an Ontario school board with 6,000 computers, he said.

And, in a couple of months, MDG will be turning heads again when it moves its headquarters and manufacturing facility to a new 60,000-square-foot building in Oakville, Ont.