Taking risks

You could excuse California-based Super Micro for cursing its luck after recently becoming one of the few vendors to be prosecuted for unlawfully selling IT products that it knew were destined for Iran.

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By  Andrew Seymour Published  September 27, 2006

You could excuse California-based Super Micro for cursing its luck after recently becoming one of the few vendors to be prosecuted for unlawfully selling IT products that it knew were destined for Iran.

The company was last week hit with a fine of $150,000 - almost five times the value of the 300 motherboards it sold to Dubai-based Supa Net in the knowledge that the equipment was being re-exported to Iran.

Some will view the charge as an attempt by the US Attorney’s Office to send out a clear message that it is keeping a close eye on this type of activity. But despite its guilty plea, Super Micro must privately regard itself a scapegoat. For if you listen to the US Department of Commerce, the case – which related to offences in 2001 and 2002 when a license was required to sell motherboards - represents one of the first criminal convictions in the US for exporting items controlled for national security to Iran.

The equipment in question is no longer under restrictriction, but it is extremely difficult to believe Super Micro was the only party guilty of taking such risks. Re-exporting is something that remains a prominent characteristic of business in parts of this region, and most in the industry simply turn a blind to it or structure their routes-to-market in such a way that they can be exonerated of all blame if products end up somewhere they shouldn’t. The extent of the fine handed out to Super Micro certainly isn’t going to change that.

Interestingly, the result of the Super Micro case comes as many US technology companies turn their attention to another market that was previously forbidden. Trade barriers with Libya were lifted earlier this year and numerous manufacturers are now making the necessary steps to begin developing business in the country. Some have already recruited local partners. Quite what these local IT companies were doing beforehand and how long these relationships have been in place might be a question the US authorities will be asking themselves.

In the same way that Dubai acts as a hub for Iran, Egypt is known to have acted as an overland route for goods into Libya, but quite how closely the US Department of Commerce has been tracking this situation is not yet entirely clear. Although it can take years to build a case for prosecution, the fact still remains that Super Micro virtually stands alone as a company punished for rule-breaking since the turn of the century. And that’s likely to ensure that those continuing to take the same risks as Super Micro did won’t suffer too many sleepless nights in the future.

Blame game

The recent eChannel editorial on the difficulty in obtaining reliable data projections on the Middle East market – and therefore establishing an accurate picture of demand levels in the IT channel – has prompted plenty of feedback.

When companies inflate their growth rates, particularly after hearing competitors provide exaggerated estimates, there is a danger that the size of the market becomes amplified and everybody ends up trading on false growth. The snowball effect that this creates makes it very hard to pin the blame on any one party.

But one source in the Middle East components channel believes the vendor community has more to answer for than most. He claims the lack of transparency that is ‘destroying’ the markets in the region won’t cease until certain manufacturers stop including sales into embargoed markets within the figures for other countries.

As long as this situation prevails, there is always the risk that companies further down the food chain will overestimate the size of some markets and find themselves in a complete mess due to oversupply. It is difficult to see how vendors are going to change the habit of a lifetime, but as long as that remains the case there is always the very real danger that the long-term prospects of the market remain completely at the mercy of short-term gains.

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