eSys bounces back after dispute

Components distribution outfit spends time meeting business partners and clients to reassure them of its future after dramatic fall-out with Seagate shocks HDD channel

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By  Published  November 30, 2006

Components distributor eSys has been embarking on a campaign to repair the damage that it believes has been done to its reputation following the dramatic collapse of its relationship with disk drive vendor Seagate.

Seagate terminated its global distribution agreement with eSys in November after alleging that the wholesaler had refused to co-operate with an audit of point of sale records.

It also made the more serious allegation that eSys officials had indicated that an audit would “likely reveal” irregularities in its compliance with the terms of Seagate’s incentive programmes.

That claim has led competitors to question the integrity of eSys’ business practices, as well as cast doubt on the company’s ability to recover from the fall-out.

eSys was Seagate’s largest worldwide distribution partner and bought more than eight million hard drives from the vendor last year.

The distributor has fiercely contested Seagate’s accusations and continues to do all it can to reassure partners and clients that it remains in good shape.

“We are trying to remove any misconceptions that our business associates may have had,” said Pavan Gupta, EMEA director at eSys. “When you go through a process like this the rumour mill will always go around, but I’m reasonably confident we will overcome this phase very soon.”

Gupta and fellow senior eSys executives, such as COO Neeraj Chauhan, have spent the past couple of weeks meeting with the company’s bankers, partners and customers to provide an accurate picture of events.

eSys continues to stand by the original reaction it gave just hours after Seagate made its revelations through an SEC filing.

In a strongly worded statement, the distributor “strongly refuted” any allegations of irregularities in its compliance of the agreements.

“Over the last six years, eSys has been supportive of Seagate’s and Maxtor’s strategies, even at some cost to itself and its shareholders,” read the statement.

“Unfortunately, the intrusive nature of the audit would not be justifiable to our worldwide business partners under our normal business practices.”

Gupta maintains that Seagate’s requests were unreasonable and would have compromised its position with other partners, but insists eSys abides by “certain principles” and is committed to overcoming its dispute with Seagate as “amicably as possible.”

He also points to the fact that eSys has promised to repay US$103m worth of outstanding accounts that it owed Seagate up until the end of September. eSys had already returned US$50m of that figure by early November.

eSys has since made some amends for losing Seagate from its portfolio by extending a hard drive distribution deal with Samsung across multiple territories. “Losing one vendor is not the end of the world,” insisted Gupta. “We are continuing to add value to our offering and becoming a full line distribution company selling monitors and notebooks for example. You will start to see that we are no longer a plain hard disk drive company. It has been important for us to explain the [Seagate] situation to people, and there are a lot of vendors showing an interest to work with us.”

“There is nothing fundamentally wrong with us. Just because a plane passes through a bumpy patch, it doesn’t mean it can’t fly anymore,” he added.

Seagate relied on eSys for US$460m of its sales last year and now all eyes are on the vendor to see how it compensates for that.

Alastair Stewart, EMEA sales director at Seagate, refused to comment on whether it expected existing distributors to increase their volumes, but he told Channel Middle East: “There are currently no plans to add any more distributors in the Middle East.”

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