When intuition is not enough

By Yoke Har Lee

Between the lines

It is very hard not to be impressed by Fisher & Paykel's innovative skills. Take its latest washing machine Intuitive, for instance. It is so "clever" it knows what to do if you just tell it how dirty your clothes are.

Fashion conscious consumers will be tempted to buy F&P's new range of stainless-steel door refrigerators, fancy ovenware and cooktops to go with their designer kitchens. This is one end of the market F&P hopes will rebuild margins.

This is also the end of the market which will increasingly bring out the distinction of F&P not only as a whiteware company but a technology-driven one. F&P has software and electronics expertise that can match the best around.

Its key has been its proprietary know-how in adapting NASA technology to make a variable speed motor to give it just that edge to bring more "intelligent" machines to market.

But consider the market constraints. F&P has little room to grow its local market. Whiteware sales have been flat here for the past few years.

The Australian market for whiteware is facing the same competitive pressure as New Zealand from a flood of international products. But since it entered the market, F&P has managed to gain market share at the expense of competitors. Indications are that competitors are fighting back, with some success.

F&P has had a slow start cracking the US, its frontier market. It disclosed that it spent $8.09 million establishing distribution channels in the US last year, on top of $3.91 million spent the year before.

And for the first time, F&P revealed its sales target of 20,000 DishDrawers (its most upmarket dishwashing machine) in the US and 12,000 Smart Drives (its clothes washer of which the Intuitive is a range) this year.

To date, US monthly sales are meeting forecast, at 950 DishDrawers and 727 Smart Drives. The climb has not been easy so far.

Meanwhile, F&P has spent the last year and a half improving its operations. It shut down Screencraft, which makes printed circuit boards, because despite having reduced the price per square metre of the boards to a third of what it used to be, it still couldn't match outside suppliers.

But with all the intellectual property inhouse - there are 23 patents on the Intuitive washing machine and nine pending - an F&P washing machine, or a dishwasher, is at best a pricey commodity. Whiteware profits were only $23.10 million on revenues of $530.82 million.

Contrast this with healthcare, where a profit of $40.72 million was earned on revenues of $118.65 million.

It is obvious where the focus should be: F&P's growth lies more in how it uses its intellectual property to raise its healthcare business to a new plane.