Panel Channel

The face of the Middle East monitor channel is changing fast. Leading players in the sector reveal the key to making money

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By  Andrew Seymour Published  October 2, 2006

|~|panelbenq200.jpg|~|Vinod Muralidharan, BenQ|~|On the face of it, the monitor channel might not seem the most glamorous of IT sectors for Middle East resellers. You receive a box, you add a mark-up, and you sell it on. But dig beneath the surface of this apparently mechanical market and a number of variants are evidently forcing the channel into some big decisions. Whichever way you look at it, the Middle East market is caught in the middle of a monitor revolution and the next 12 months are poised to herald a bright new era. One prominent factor lies at the heart of this change: the increasing shift from CRT to LCD. This trend might have been bubbling away for some time now, but the rapid pace at which it is presently developing is destined to reshape the market. Several onlookers claim the Middle East is enjoying a rise in desktop monitor shipments of more than 30% a year, although analysts argue 10% to 15% is a more realistic figure. Either way, this growth is firmly attributed to demand for LCD-based products. "In some of the major markets in Europe I think the LCD to CRT ratio is 80-20 and we are not far behind,” asserted K.V. Narayanan, manager sales and marketing at Samsung’s digital information technology division. “Today the market in this region is at 60-40.” According to data from UK-based research house Context Bryan Norris Associates, more than 3.3 million monitor units were sold in the Middle East and Africa inside the first six months of this year, compared with 2.9 million in the corresponding period of 2005. An equally strong haul during the second half of 2006 would be more than enough to ensure the market exceeds the 5.7 million units recorded during the previous 12 months. Both the UAE and KSA are said to be leading the local boom, although Kuwait and Qatar are also purported to have soaring LCD penetration rates given their relative size. “SMB is a major factor in all of the GCC countries because of the oil money. Investments in infrastructure are happening and right now SMB is outgrowing the traditional corporate business,” said Vinod Muralidharan, business manager LCD monitors at BenQ. This dramatic shift in the direction of LCD has already prompted several OEMs to evaluate their position, lending further support to those who see nothing but a flat-panel future. “If you look at the manufacturing companies in China and Taiwan, many are already migrating to LCDs,” said Vasant Menghani, managing director at UAE-based Quality Group, owner of the Touchmate range of computers and peripherals. As both office planners and consumers become more ergonomic in their thinking, a sleek-looking LCD screen is undoubtedly a more compelling proposition than an unwieldy CRT monitor. What’s more, LCD displays are becoming the de facto models sold by PC vendors in the retail market. CRT screens, in contrast, are being relegated to the cheap entry-level shelf. This pattern is also visible in the whitebox space due to the fact that most LCDs come attached with a three-warranty, the same as a PC. “You’ll find CRTs often only have a one year warranty. All the PC assemblers and sellers prefer to buy product with a three-year warranty because it gives them peace of mind,” said Vijendra Singh, product manager at distributor Almasa. “A PC with a three-year warranty and a monitor with one-year becomes very difficult to justify.” ||**||Price declines|~|panelDTK200.jpg|~|Samer Attasi, DTK|~|Savings on storage, handling and freight costs have had a major impact too, with one source claiming that 800 LCD screens can be squeezed into a container normally suitable for just 350 CRT boxes. Almasa took the decision to stop holding CRT inventory at the end of last year, and while it continues to fulfill customer orders, the product is now shipped directly from the manufacturers’ warehouse. Hardware supplier DTK Computers, which sells 80% of the monitors it produces as part of PC bundles, also anticipates an imminent shift in customer preference. “At the moment for us, LCD and CRT shipments are equal,” said Samer Attasi, sales manager at the company. “But in 2007 I think the proportion of LCDs shipped will be much bigger, perhaps as much as 70-30.” As the MEA region swings towards flat screen supremacy, resellers that carry LCDs as standalone products are faced with numerous issues that could make or break their monitor business. Size remains a fundamental feature of the display battle and those resellers adept at identifying changes in customer purchasing behaviour early on in the cycle - and who buy in product accordingly - will reap the dividends. Samsung, for example, predicts a migration towards higher screen sizes in 2007, with a ‘dominance’ of 19-inch TFT screens at the entry level. The forthcoming launch of Microsoft Vista - which boasts new split screen functions - is expected to be a key driving force behind this trend. Notebook sales are being lifted by the popularity of widescreen displays too, particularly in the consumer segment where users desire a larger screen to accommodate their DVD and gaming habits. A decline in prices has contributed enormously to the LCD boom, agreed Menghani at Quality Computers. “Prices have drastically come down in the last seven or eight months. Monitors are now selling for as low as US$150,” he said. The pricing gap between product specifications has also been squeezed, indicating the frenetic pace at which the market is maturing. Commentators insist the fact that the mainstream market has already gravitated from 15-inch to 17-inch displays is primarily down to a price discrepancy of just US$20 to US$30 in some retail outlets. Success in the monitor arena comes down to striking a perfect balance between margins and quantity sell-out, according to Narayanan at Samsung. “That is what every retailer is looking at today,” he explained. “I think that’s the right approach to the business because if you focus on the one aspect, such as margin, then you might not have the right quantity sell-out. But if it's clubbed together I’m sure that makes business more interesting for everybody,” he added. One concern is that as the LCD market becomes increasingly dynamic it is beginning to demonstrate volatile pricing traits more associated with CPUs and HDDs. That presents a challenge for vendors striving for consistent pricing strategies. Experts suggest recent hikes in component costs could inflate prices in the build-up to the fourth quarter, and point to a rise in panel prices of US$15 to US$25 depending on screen size in the last month alone. ||**||Channel inventory|~|panel-VS200.jpg|~|Aaron Fright, ViewSonic|~|Earlier this year, the entire EMEA market was hampered by excess channel inventory with UK-based monitor research house Meko citing Acer, BenQ, and LG as the biggest culprits. Many panel producers subsequently reduced their supplies only to see inventories in the channel decline earlier than anticipated. “What's happened is that demand has gone up and the supply position is less, which means there is a premium that everyone is paying today to get access into the panels,” commented Narayanan at Samsung. “There will be a [price] increase, but by what percentage we are still waiting to see — it could be a very nominal increase.” Such uncertainties are unlikely to faze a reseller community already used to making tough calls. Typical margins in the region range from just 5% to 6% on entry-level monitor products and stretch to 8% to 9% in the larger segments, particularly on a consumer sale. “Margins depend on the type, size and buyer segment. Retail buyers provide the maximum opportunity for higher margins,” suggested C H Lee, president at LG Electronics Gulf. That said, the channel can still make a killing on low-end products if they achieve high volumes. Margin pressure clearly remains a sensitive issue, however. Frank Sheu, boss at Almasa IT Distribution, recently made a point of promising Dubai resellers that margin protection would be a major priority following its recent agreement with Hong Kong-listed display specialist Proview. “I know a partner of one of the top monitor players in the UAE selling a 17-inch LCD and making as little as five dirhams,’ he said. “This will not happen with Proview.” Almasa confesses that one of the reasons its monitor relationship with previous monitor partner Acer petered out was due to 'channel feedback’ regarding margin concerns caused by over-distribution. The wholesaler is poised to add another two monitor vendors to its stable before the end of the year and is confident that its just-in-time inventory model and pricing structure will offer resellers a more attractive margin proposition. “One of the other policies we have taken is not stuffing the channel with inventory,” said product manager Vijendra Singh. “We have a warehouse in Dubai catering to the small guys and then a warehouse in Jebel Ali catering to the big guys and we have ensured the channel that even if they buy a small quantity - as long as they are fulfilling their monthly quota - we will give the same price. If a channel is committing to 500 units in a month, then even if he is buying 10 units or 50, he’ll get the same price as 500.” LCD vendor BenQ is also endeavouring to keep margins attractive for the channel. “We are against channel stuffing,” declared business development manager, Vinod Muralidharan. “We try to work on optimal inventory levels for the channel and have guaranteed tier-one and tier-two margins.” As well as monthly stock audits, BenQ has introduced loyalty schemes and, since last year, has had detailed reporting systems in place with both tier-one and tier-two partners to monitor how much stock is in the channel. Another reason the margin topic remains so pronounced in the monitor sector is because IT resellers are also in combat with the consumer electronics channel. Vendors in the region are naturally keen to court both camps if it means enhancing their brand. However, Aaron Fright, regional manager MEA at ViewSonic, warns against over-distributing into these channels. “Even before ViewSonic came into this market we realised that if you want long-term success then you need to maintain good channel integrity. This region is sensitive to vendors messing with their channels and flipflopping around for short-term gain. I would say that 70% to 80% of our business across the region is still with the same partners we signed up eight years ago.” ViewSonic currently works with Trigon and Al Yousuf Digital in the UAE and several other in-country partners throughout the region. ||**||CRT demand|~|panelsheu200.jpg|~|Frank Sheu, Almasa|~|While the monitor market may appear restricted in terms of the value add opportunities that surround it, the leading vendors are all doing what they can to gain an advantage. Hosam Berbawy, regional manager at display brand Proview, said: “LG and Samsung are very strong, but we are really trying to put our name inside this market. We try to be different in terms of price and after-sales service. All companies offer warranty and after-sales, but some of our distributors also offer the customer a three-week period to change [the product] because they trust our support and after-sales service.” Samsung, meanwhile, claims its sleek technology design differentiates it from rivals and also points to a broad product portfolio that stretches from 15-inch to 45-inch models, while ViewSonic maintains that its ‘display-centric heritage’ and product innovation separate it from the crowd. “LG’s product strategy is to market monitors which are very attractive in terms of design and specifications such as the highest contrast ratio and smallest response time,” asserted Lee at LG. One certainty is that quality and durability remain key for every major brand. “If you are giving a three-year warranty then you don't want any kind of breakdown,” said Atassi at DTK Computers. “If a PC has a problem with the hard drive you can solve it easily, but on a monitor there isn’t a problem which could be that small. It has to be taken back to a service centre to perform diagnostics. Servicing a monitor is much more difficult than servicing a PC.” Keeping a close eye on the different characteristics of each market in the region is integral for any vendor trying to penetrate the Middle East. Fright at ViewSonic said: “Some markets are more advanced than others. If you look at the Saudi market in the second quarter, it reduced by a couple of thousand units compared with the first quarter, whereas the Egyptian market, where CRT is still predominant, increased by 10,000. Each market has its own individual country dynamics that moulds and gives shape to the entire region.” Nowhere is that statement more applicable than the Iranian market. Steep import duties have forced several vendors, including LG and Samsung, to establish semi knockdown plants in the country in order to sidestep the financial obstacles that stand in the way. Yet for all the hype surrounding LCD screens, it would be premature to announce the death of the CRT screen just yet. “Middle East and Africa make up about 6.6% of total EMEA LCD sales but the percentage of CRTs is still high,” explained Jordan Popov, research manager desktop monitors at Meko. “In the second quarter, half of the CRTs sold in EMEA were in the MEA region.” Berbawy at Proview acknowledged that a huge shift is likely to take place inside the next year, but added that plenty of markets in the region heavily favour CRTs: “We are still working with CRT, especially in places such as Jordan, Egypt and Syria where 70pc of orders are CRTs.” Vast swathes of the corporate sector continue to keep the CRT bandwagon rolling - largely because of rock-bottom price points in the 19-inch and 21-inch segments - while a buoyant African re-export market is certain to prevent the CRT market from being rendered completely obsolete just yet. NGO-funded projects and home PC initiatives in countries such as Egypt or Syria also advocate the use of CRTs due to their low cost. “Where the PC penetration rate is low today we still rely on CRT demand,” said Narayanan at Samsung. “The volumes justify it or we would not be running a line.” Whether that is still the case in 12 months’ time is a different question altogether. ||**||

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