Education Sector Offers Hope For Weak PC Market, But Pricing, Margin Pressure Pose Challenges

The education sector has become a bright spot for a flagging PC market, but solution providers say their success in that space depends on their ability to sell services as aggressive pricing puts pressure on margins.

Some vendors and solution providers have also begun to see success upselling school districts from Chromebooks to higher-end Windows-based PCs that offer better margins.

"I'm hearing some price points on some non-Dell manufacturers' devices where the device is $150, and I think this device becomes sub-$100 and just become such a low-dollar item that it becomes disposable," said Stan Lupkes, vice president of SLED sales at Dell partner Sterling Computers, which has seen its Chromebook business grow significantly among school districts nationwide in recent years.

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"As partners, there's not a lot of margin in Chromebooks, so we also offer a handful of services we can provide. That's where we try to make up the margin," Lupkes said. "It's 'white glove' stuff: putting devices in the Google management console for end users, providing an asset tag on the device, enrolling in the management console, updating to the latest version of Chrome, putting it in a sleeve and delivering it to the site. We do green, completely trash-free delivery in California."

John Waltz, owner of Cincinnati, Ohio-based Lenovo partner Forward Edge, agreed that pricing has made education-focused Chromebooks essentially disposable. "They're going to get to a point where they break and get thrown away," he said. "Lenovo's price points are under $300. Acer and Dell are sub-$200. It's literally a consumable item at this point."

At the same time, Windows-based PCs aimed at the education market are lasting longer than expected, which also puts pressure on solution providers who are left without two-year refresh opportunities, making the services play all the more important, said Chip Logan, head of vendor relations at Forward Edge.

"The original expectation was two years, and three is what they're pushing for," Logan said. "But depending on budgets they can string them out to four. For a few districts using standard Windows versions, students get it freshman year and when you graduate, the device becomes your device. The Windows version is lasting past the four year mark."

Despite the pricing and margin pressure, the education market represents a huge opportunity for PC vendors and their partners. According to a recent Futuresource report, the installed base of "mobile PCs" in K-12 education hit nearly 80 million worldwide in 2015 and is expected to hit 91 million by the end of this year. Futuresource predicts that number will grow to nearly 100 million by 2019.

That growth will come in the face of steep declines in the PC market overall. According to IDC, first quarter worldwide PC shipments dropped 11.5 percent year-over-year to 60.6 million units amid "limited consumer interest and competition from other infrastructure upgrades in the commercial market."

Still, IDC recognized that the education market "should experience a modest rebound in the coming months."

Chris Elkendier, director of education services at Technology Resource Advisors, a Milwaukee, Wis.-based Lenovo partner, said the education market does represent a big opportunity for solution providers, but device prices and school district budgets make the market difficult to predict.

"The price gap is closing quite a bit between Windows and Chrome, and Microsoft has been pushing really hard to get their grasp back in the education market," Elkendier said. Still, Technology Resource Advisors has seen strong year-over-year growth in its Chromebook business, Elkendier said.

"Price is a factor," Elkendier said. School districts that consider putting a Windows-based device in the hands of every student must also consider whether their district has the infrastructure in place and IT department to do that, he said.

"A lot of districts now are doing blended," Elkendier said. "They're doing PCs in labs, Macs in labs, and giving the kids Chromebooks. The most successful or well-planned districts I've seen have given their kids accessibility to all those options."

Technology Resource Advisors works with about a third of the largest school districts in Wisconsin, Elkendier said.

"I don't envy any school district IT director who has to make a five-year plan," Elkendier said. "Five years ago, Chromebooks weren't even out."

Jon Phillips, managing director of strategy for Dell's global education, state and local government business, said Windows-based PCs are resurgent in certain segments of the education market. He said a trend toward higher-dollar Windows PCs began taking hold among school districts in the current buying season, especially among high schools and colleges.

That's an emerging trend that Lenovo has noticed recently too, said Sammy Kinlaw, the company's channel chief.

"Chrome is very strong in middle school," Phillips said. "Windows opportunities are better suited to high school and adults. Windows is making some strides, although slowly. Teachers love the Chrome experience. It really talks to the teacher and the learning environment."

Either way, it's essential for solution providers to offer services around those device sales, Phillips said.

In high schools Dell's Latitude 11 and Latitude 13 laptops have been gaining traction, Phillips said. "We're selling more of them in high school refreshes. It's a higher price point, higher margin, and more implementation of services can be wrapped around it, whether it's infrastructure implementation, network security, wireless, carts, furniture."

Phillips said margins reach "healthy double-digits" when services are wrapped around Windows laptops compared to single digits for device-only Chromebook sales.

"You start to get to a point where [solution providers] are delivering a better experience," Phillips said. "The customer sees the value, sees that there's more. It has a profound impact in the overall district-wide deals we do. The business becomes sustainable."