Computer Street rocked by 'runaways'

Concerns raised over financial status of three traders on Dubai's Computer Street

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By  Andrew Seymour Published  November 27, 2008

The Dubai IT trading community is bracing itself for further turmoil following concerns that at least three traders in Computer Street have encountered financial difficulties preventing them from meeting payments to distributors.

Several PC and components wholesalers are understood to be chasing debts from Dubai-based companies SM Computers (SMC) and Green Forest Computer, in addition to an as yet unverified third trader.

Green Forest’s showroom remained closed when visited by Channel Middle East earlier this week. Neighbouring traders said the company is known as a reseller of PC hardware and Toshiba laptops.

SMC, meanwhile, distributes products from brands such as HP, Intel, Dell, Acer, LG and Western Digital. Sources claim employees have not been paid for over a month and that the manager hasn’t been seen at the store for almost four days.

Just two members of staff were present at SMC’s premises off Khalid Bin Al Waleed Road earlier this week, but declined to comment on the situation. Attempts to reach the management of both SMC and Green Forest have so far been unsuccessful.

At least six distributors are believed to be seeking payments, including components specialist Asbis. The hard drive and memory distributor confirmed that it was owed money by SMC, but said the amount was small as it had reduced exposure to the company in recent weeks.

“We have been monitoring its sales for the last two months and seen that it has been liquidating some goods. It bought some hard drives from us where it sold below cost,” said Hesham Tantawi, VP for the Middle East and Africa at Asbis. “When we suspect that any customer is selling below cost we try and withdraw shipments and supplies.”

Another well-known IT distributor awaiting payment from SMC claimed it was in touch with the company to recover its dues, but said it had sufficient credit insurance in place to protect it from potential losses.

“These days in the market a lot of cheques are bouncing, but most of the people come the next day and cover everything — it is not all malicious intent,” said the distributor. “However, it does give you the idea that there is a cashflow problem and some companies are not able to manage their cash correctly these days.”

Concerns over the ability of resellers to meet payment terms are the most serious since a credit crisis more than two years ago led to the collapse of three major Intel dealers.

While the current global financial climate is compounding the challenges that local IT traders face, some onlookers argue that it is not solely to blame.

“The companies concerned used to buy a lot of products and were active traders, but we know for sure that one or two of them used to sell below cost,” said one trader in Computer Street. “It is very unfortunate that the vendors and distributors giving them credit never realised that the goods they were selling to them were coming back into the market at a lower price.”

The value of arrears that distributors are seeking to recover from the three resellers is not clear, although sources on Computer Street speculate that collectively it could total more than AED12m ($3m).

One reseller said it was concerned that the current turn of events could be the start of things to come as traders and sub-distributors are confronted by cashflow challenges: “We are just crossing our fingers that it will be okay, but we are a little worried that we will hear of one or two other names in trouble. The market is very tight, payments are coming in slowly and people are calling to delay the cheques. The effect of the crisis is starting to show up.”

Shailendra Rughwani, president of the Dubai Computer Traders Group — established to help resellers manage issues such as credit — confirmed that neither SMC or Green Forest were members of the DCTG.

He warned resellers to remain vigilant while difficult market conditions persisted. “Due to the credit crisis, I think we all need to be very careful about who we are dealing with and we should not be going after high volumes for now,” said Rughwani. “It is important to focus on core business and margins, and be very watchful.”

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