Mobo Magic

The Middle East market is awash with motherboard vendors pushing in-country to find the distributors with true channel reach.

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By  Stuart Wilson Published  June 4, 2006

Solid growth|~|mobo2vadim200.jpg|~|Vadim Lisenko, marketing manager at Foxconn|~|Motherboard manufacturers from the Far East have been surprised by the huge potential for sales in the Middle East market. They have stopped looking at the region as one homogenous market and started paying attention to detail. Gone are the days when shipments of components flooded in through the ports of Jebel Ali and Jeddah to be pushed across the region by a handful of distributors. Vendors are now looking for local touch and partners with a solid understanding of channel dynamics are in high demand. If the processor is the beating heart of a computer, then the motherboard is everything else encased in the abdomen, somewhat overlooked but essential for life. Though hidden inside computer casings, motherboards are one of the components that systems integrators can make profit on, with estimates by distributors of around 10% to 15% margin for resellers integrating a motherboard into a system. On a worldwide basis, Asus, which claims one in every three PCs sold is powered by its motherboards, is targeting sales of 60m this year. Regionally, Taiwanese vendor Foxconn estimates the total motherboard market in the Middle East was 2m units in 2005 and predicts growth to 2.3m units for 2006. “Breaking down our 2006 forecasts, I would say that the total addressable market (TAM) for motherboards is 280,000 boards in North Africa; 500,000 in Egypt, and across the GCC and Levant we expect 250,000 boards to be sold. The highest potential in the region actually lies in Iran, which has a predicted market of 770,000 motherboards per annum now,” explains Vadim Lisenko, marketing manager at Foxconn. ||**||Price factor|~|mobo1.jpg|~|Tamer Ismail, general manager at BDL|~|Though the market has significant potential, like many component sectors it is dominated by a small number of powerhouse vendors. Asus and Gigabyte have the majority market share, but there is also strong competition from MSI, Foxconn and ECS, which all claim over 10% of the regional market each. This has led to a number of the smaller second tier vendors, such as TUL and Shuttle, being squeezed out altogether. Dubai based distributor Comtronix includes both a first tier vendor and a second tier vendor in its portfolio, representing Asus and Albatron in the Middle East. “We sell around three times more Asus than Albatron motherboards. Albatron finds its market through going for niche sectors; for example, it offers a card with two PCI sockets. As Asus expanded its product range from only high end products to a full range, many second tier vendors left the market,” says Patrick Lin product manager, computer components at Comtronix. Differentiation is difficult as the basic specification of the motherboard is dictated by its chipset, giving the chipset manufacturers a certain grip over the market. Foxconn claims the emphasis on the chipset limits the amount it can do to introduce unique selling points. “It is difficult for manufactures to add differentiating features. We are limited by the chipset. If Intel introduces a 945 chipset, then we work with 945 chipset, if they introduce the 975 chipset we work with that. We have some features such as the ‘Fox 1’ chip, on the 975 boards that can change settings inside the computer without opening it up,” explains Lisenko at Foxconn. Price is still the driving factor for sales in the region, but as margins for distributors are wafer thin — estimates from two vendors claim that on the low end products, distributors can work on margins of less than 1% — return rates, warranties and local service capabilities all play a major part in purchase decisions. “Most entry level products are covered by one-year warranty and vendors give a buffer of 1% to cover the warranty. Brand names offer three years warranty and give our team training to fix common problems and provide spare parts quickly. You can buy cheaper parts from the Far East, but when you’re working on such small margins, if the products aren’t reliable and you get 2% or 3% returns, you’ve lost your entire margin,” says Tamer Ismail, general manager at BDL distribution, a distributor of MSI and Intel motherboards, which he estimates accounts for 60% share of the 200,000 units per annum Saudi Arabian motherboard market. ||**||Going deep|~|mobogs200.jpg|~|Eshan Hashemi, director sales and distribution department at Golden Systems|~|Distributors such as BDL, which deals mostly with small system builders across Saudi Arabia have the local connections sought after by vendors. The strategies employed by vendors varies, with Asus using six main distributors spread across the region, in contrast to Foxconn, which claims 60 distributors regionally. MSI is also keen to enhance its regional focus. “We have distributors focusing on specific countries. Most of them are selling a full range of MSI products, but if customers are interested in one or two product lines, we can work on that basis. We particularly appreciate customers that focus on channel business,” says Susan Shu, assistant VP, channel sales division at MSI. Vendors now understand that channel strategy needs to be tailored to the different countries of the region. “You have to look at the divide between the GCC and the rest of the region. The average GDP is much higher in the GCC, so the customers tend to buy a higher specification board. Markets like Yemen, Iraq or Jordan have completely different needs, and price is much more of a factor. Outside the GCC the differences between the markets are huge,” says Eshan Hashemi, director sales and distribution department at Golden Systems. The benefits of going deep into a market and serving the areas outside of the main cities in a country can pay great dividends for distributors. “We have around 400 regular customers throughout the Kingdom. The most important thing is the breadth and very wide channel network that we have. Only 45% of our business comes from the central cities of the country, the provinces account for over half our sales,” says Ismail at BDL. Another potential area of business is tenders. Golden Systems works directly with a number of systems integrators when it comes to tender projects to ensure it makes the best offers possible on these deals. This business accounts for 30% of Golden Systems overall sales. Comtronix is currently in the process of evaluating new markets for entry so it can tap into the tenders market. “We are working with 200 channel partners and carrying out detailed market analysis of countries and entry strategies. Our business is currently 10% tenders, 10% integrators and 80% resellers, but we are hoping to really boost the number of tenders and systems integrators as we move into new markets,” says Jerline Foo, purchasing director at Comtronix. “In 2005 our business aim was to build the channel, in 2006 it is to build consumer branding, not channel branding but reaching to the customers,” says Lisenko. ||**||Local touch|~|moboasus200.jpg|~|Marvis Hsiao, sales director MEA at Asus|~|Foxconn is a relative newcomer to the Middle East and has employed aggressive strategies in branding and pricing to promote its products since it set up in 2004. The vendor says it is targeting 15% market share in the region by the end of 2006, up from 12% in 2005. Foxconn claims one of its greatest advantages is its position as a locally based vendor, with a local stocking point enabling it to provide more comprehensive service and low minimum order numbers. This is a commendable tactic, but Golden Systems, which works very closely with Gigabyte, says vendor presence is not vital for success. “We take Gigabyte’s experience and they take our knowledge of the market and then we combine it,” says Hashemi at Golden Systems. “Foxconn is coming from an OEM background, and Gigabyte is a well established brand name, so the distribution mentality is different compared to the OEM mentality — OEMs are looking for more business, volume and quantity of distribution, whereas Gigabyte is looking at the quality and makes sure channel partners are making enough margin,” adds Hashemi. Distributors also find themselves battling to balance margins and market share. This requires them to keep a keen eye for products and the prices they are able to offer them, dictated largely by the quantity they buy from the vendor. Recent moves by chip giant AMD into the region created a great deal of excitement in the processor market, but in the motherboard space, products fitted with AMD sockets aren’t faring as well. BDL says that less than 2% of its motherboard sales are with AMD sockets. The main vendors are concentrating on diversifying and expanding their portfolios. Foxconn is hotly tipped to enter the graphics card market and an announcement is expected at this year’s Computex exhibition in Taiwan. Some of the smaller vendors will find themselves looking outside of the motherboard market altogether. “Only a few key players who have the ability to manufacture with tremendous production capacities and ship huge quantities like Asus can survive and keep satisfying the demands from the customers,” says Marvis Hsiao, sales director MEA at Asus. Portfolio expansion and the new emphasis on platformisation can mean big changes for distributors. With the market moving to mobility, Comtronix says it sees its involvement with components diminishing. “We will sell less motherboards as the market goes mobile and prices come down,” says Foo at Comtronix. Despite this trend, as a developing region, the Middle East will continue to have a stable market for some time. As certain markets mature and shift towards mobility, others reach the stage where they are ready to adopt technology. Markets such as Africa, Pakistan and the CIS have phenomenal potential. The smartest distributors are already making a beeline for these growth markets. ||**||

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