Hard knocks

The hard disk drive market has witnessed consolidation of an unprecedented level in recent years, leaving just a handful of manufacturers to slug it out in search of glory. Channel Middle East takes a look at the go-to-market strategies of the major players here in the region.

If there is one aspect of their channel strategy that hard disk drive vendors can’t afford to get wrong if they wish to prosper in the Middle East then it’s their distribution model. The leading HDD manufacturers are all eager to strengthen ties with the second tier channel through the use of compelling sales programmes and local seminars, but it is still the presence of a solid distribution network that underpins their ability to comprehensively serve the market.

Western Digital, a vendor that has had an office in the Middle East for more than a decade, insists wholesalers must have “components distribution DNA” within their make-up to stand any chance of success in the uncompromising hard drive business. It has established a classic two-tier structure that relies on a blend of larger regional partners based in Dubai and local distributors capable of in-country development.

“The local guys’ strengths are that they know the market and they are invoicing in local currency so they are less affected by the current fluctuations in the markets and currencies,” explained Khwaja Saifuddin, director sales MEA at the vendor. “They give us the balance that is needed to fulfil a country’s or channel’s demand.”

Both partner types buy directly from the vendor and enjoy access to the same programmes. The regional distributors — which consist of eSys, FDC, Metra and Redington — play a key role in getting products into smaller markets, where present volumes don’t justify an in-country partner. Local distributors, present in larger markets such as Egypt and Saudi, take delivery of products and develop the channel.

“That has been the model for a while now,” said Saifuddin. “We have only reduced a few partners, just to do away with a certain overlap that was there. Initially we also had TDME as a regional partner, we used to have two partners in Pakistan which we have now reduced to one, and in Turkey we used to have three, but will reduce that to two this quarter. That will create a synergy and restore that profitability in doing the business.”

Understanding the geographic strengths and market development capabilities of a distribution partner is vital in the hard drive arena, particularly when there is so much pressure to meet quarterly targets.

Seagate employs six authorised distributors in the region — Almasa, Asbis, Avnet, FDC, Logicom and Metra — but insists each one has an important part to play in addressing the market. Metra remains an influential player in Egypt and Saudi Arabia, for example, while the likes of Logicom and FDC provide strong coverage of the GCC and Levant.

“Seagate doesn’t change its distributors overnight, especially now that we have 44% market share in the region,” said regional channel manager Christian Assaf. “Our distributors are performing very well so far and doing what we expect from them.”

Not all hard drive vendors believe that using multiple regional distributors is the optimal strategy. Samsung, for instance, has local in-country partners carrying its products in markets throughout the region, but counts only Metra as its master distributor.

Madhav Narayan, general manager of Samsung Gulf’s IT division, describes the company’s set-up as a “controlled distribution” model aimed at ensuring the channel’s health.

“In the hard drive space the biggest challenge is oversupply and overstocking — the channel struggles to make margin out of the business, especially when the sector is so susceptible to price changes versus supply and demand,” he said. “That is why we insist on quality and controlled distribution. We want to try and deliver margins to all levels of the channel so that the distributor and reseller actually make some dollars on each box rather than getting into an overstocking situation.”

If there is one certainty in the hard drive channel, it is that the market will see some vendors modify their first tier structures in the Middle East this year. Hitachi Global Storage Technologies (HGST) presently works with four partners — Almasa, Asbis, Avnet and Trinity — but is looking to supplement that line-up with disties that carry non-competitive lines and can bring focus to the business.

“That is something which is in the pipeline and negotiations are happening with different candidates that have shown an interest in the last few months,” revealed Hafeez Khawaja, CEO at HK Consulting, which handles HGST’s channel strategy in the region. “There will definitely be a couple of Dubai-based companies and maybe one each in Egypt and Saudi Arabia. If you look at the total available market in the Middle East it is around 1.5 million hard drives per quarter. And despite the economic slowdown the market is growing 7% to 8% — the only region in the world where that is the case. Everywhere else is stagnant or showing negative figures.”

Changes in the Hitachi channel are unlikely to end there, what with its February acquisition of Fabrik, the company behind the SimpleTech external hard drive brand. SimpleTech shipments are reported to have slowed in the region since the purchase was announced and it is poised to be another month at least before its new owners shed any light on future regional channel strategy, although Khawaja speculates it will probably encompass both retail-focused and bulk-focused distributors.

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