Internal bleeding

Members of the Middle East components channel are having to pick their battles carefully as they go about making money from a sector renowned for its volatility.

Tags: EZY InfotechGolden Systems Middle EastGoodram Middle EastUnited Arab Emirates
  • E-Mail
Internal bleeding Ehsan Hashemi, Golden Systems.
More pics ›
By  Piers Ford Published  April 10, 2010 Channel Middle East Logo

The internal PC components market has just endured its toughest ever year in the Middle East. Manufacturer consolidation has helped to stabilise the market and sustain prices that were threatening to drop out of sight.

But pressure on margins, particularly at the volume end of the spectrum, remains intense for distributors and traders operating in this field.

They have had to adjust their inventories accordingly, struggling to identify where the greatest profit potential actually lies. And the region’s fragmented market, with its fluctuating local demands, remains notoriously difficult to analyse.

“The Middle East is a big territory, which consists of many markets with many different trends,” said Ehsan Hashemi, COO at Gigabyte distributor Golden Systems Middle East. “While certain markets have seen the component business shrink, other markets have been witnessing growth. There are still many component-driven markets in this region that will provide good revenue to distributors. It is becoming tougher to make money in this market, but this is also the case with many industry segments in the region as it has become more competitive.”

Hashemi says that when it comes to analysing the most profitable components, it is impossible to separate the product from the distribution model.

“There are some fast-moving volume-based products in the market such as hard drives and processors,” he continued. “Although these products provide a very low margin, the right volume will provide a decent profitability.

“On the other hand, you have products such as motherboards and graphic cards that may provide a higher margin but definitely less volume. Certain distributors offer certain products together that provide the right margin only when sold as a basket. To answer the question about profitable products, any component could provide the right margin if utilised in the adequate distribution model.”

Shrinking credit lines are also having an impact on the way distributors use components to boost revenues. Somkant Mishra, regional manager at Ezy Infotech, says that from a percentage point of view, VGA and memory remain the most margin-rich products.

“VGA is not traded like HDD and CPU, so it’s being sold at a certain price point which is not always the case with other components,” he said. “Some channels sell CPU and HDD to generate cash, which doesn’t allow a reasonable margin. The same doesn’t apply to VGA. At the same time, HDD and CPU is such a high-volume business that it allows you to make more money in total terms, but may not compare percentage-wise with VGA.

“As far as expectations for the coming year are concerned, I would be happy to maintain the same numbers as last year for multiple reasons. Interestingly, profit margin has been better in this crisis year, compared with previous years. And we can already see some consolidation in the channels, which should add to profit margin from top to bottom.”

Inevitably, charges of volatile pricing and dwindling margin are laid at the manufacturer’s door. Some manufacturers say they are helping distributors to diversify away from PC components. Khwaja Saifuddin, director sales MEA at Western Digital, for example, says the business has decided to focus more on channel education and non-PC based HDD demands.

“We are ensuring that the demand and supply balance is maintained to avoid any unnecessary pressures on the distributors and resellers which usually result in price erosions,” he said.

Jonathan Gaddella, director at memory maker Goodram, says consolidation in the DRAM sector has finally allowed manufacturers to make meaningful profits, boosting prices to a more realistic level and raising margin potential. On the other hand, this has allowed larger regional distributors to take a firmer grip on the market — and their conservatism in the economic downturn, combined with more modest credit line, has had a significant impact on purchasing capability, revenue and product availability.

“At a time when distributors prefer to be more conservative on purchasing, our logistics hub in the Middle East allows our memory modules to be easily accessible with speedy delivery in the region,” he said.

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code