Is that really the bottom we can see?

Intel had the IT channel dreaming about the prospect of a market ‘recovery’ this week by suggesting that PC sales have fallen as low as they are going to get

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By  Andrew Seymour Published  April 19, 2009

Intel had the IT channel dreaming about the prospect of a market ‘recovery’ this week by suggesting that PC sales have fallen as low as they are going to get.

The chip vendor — a long-time bellwether for the technology industry — is adamant that the market “bottomed out” during the first quarter, paving the way for a return to more regular buying patterns and restoring some confidence to a channel longing for stability.

Quite how much we should read into its good cheer is debatable. After all, the fact that Intel isn’t actually predicting any revenue growth for the next three months could be taken as a clear indicator that the rebound it foresees may end up being something of a gradual one.

Equally, while Intel’s optimism makes a welcome break from the endless flow of gloomy notices issued by the sector’s top players since the tail-end of last year, I doubt if anybody in the Middle East channel is getting too carried away.

It was interesting to read in Intel’s results statement that the company managed to flush out US$700m worth of inventory during the first quarter, providing some much-needed relief after nagging concerns over the level of stock lodged in the supply chain.

This subject remains especially pertinent in the wider Middle East market and arguably holds the key to how effortlessly some IT suppliers will make it through the next few months. Excess stock in the channel has unfortunately been one of the most prevalent by-product of the downturn as demand for volume items has fallen dramatically short of expectations.

As you’d expect, it is not a topic that vendors are comfortable talking about. Those which are prepared to acknowledge it invariably claim they have solved it. Rarely do they admit, on record, it is an ongoing issue requiring constant attention.

Yet the ‘problem-doesn’t-exist’ attitude of some vendors is routinely betrayed by the sentiment expressed in the channel, where players claim to be frustrated by the indigestion pains they have to put up with.

Some onlookers say that vendors which persist with dubious short-term sales policies and sell-in compensation models for employees deserve to shoulder much of the blame for excessive stocking, although that might be a touch harsh. The inventory management skills of some distributors are clearly more advanced than others, while the flow of product into the region from those that see the Middle East as the ideal place to offload surplus stock clouds the situation further.

But if members of the distribution and trading community are to see light at the end of the tunnel then their ability to overcome this challenge could certainly prove to be a decisive factor.

The big question on everyone’s lips, of course, is when will conditions return to what could be described as something akin to normal?

Apart from those that believe some form of regularity is unlikely to be seen for a period of years rather than months, the general consensus seems to be that companies in the local channel are realistically looking to the mid-to-end of the third quarter for signs of those elusive green shoots.

That certainly isn’t an unreasonable expectation although it does make you wonder how many organisations are resilient enough to hold out in the meantime. The Middle East is accustomed to business falling away in the perennially sluggish summer months, comforted by the knowledge that the rest of the year will adequately compensate for that softness. For the first time, however, that scenario no longer guaranteed, which could spell disaster for companies lacking a strong financial backbone.

What is certain is that tales of distributors and resellers re-engineering their businesses to cope with these uncertain times are mounting by the day. Several companies are said to have carried out internal restructuring during recent weeks — not just in terms of personnel, but practices and functions.

One distributor I spoke to this week revealed it has completely overhauled its sales procedures by becoming more scientific in the way it tracks customer activity. Sales staff now have the tools to ensure customers are given greater attention and no account is allowed to remain dormant. And whereas staff may have made 20 calls a day in the past, that figure is required to be closer to 200 now.

Going back to basics is a strategy that appears to be as infallible as any during this period, although savvy organisations have realised that getting their houses in order now will not just help them weather the storm, but leave them better-placed to cope with the healthier climes once they return.

Whether you’ll find a Middle East IT company willing to declare that the market has bottomed out already could remain a difficult task for a few months more yet.

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