Seagate dumps distributor eSys

Hard drive vendor claims partner refused to agree to an audit of its operation
By Staff writer
Wed 01 Nov 2006 04:00 AM

Hard drive giant Seagate has taken the dramatic step of dropping eSys as a global distribution partner following its alleged refusal to co-operate with an audit of point of sale records.

The US vendor has already ceased shipments of its products to Singapore-based eSys, which was previously Seagate’s largest distribution partner and represented 6% of its revenues — equivalent to US$168million for the three months to the end of September.

In a filing to the US Securities and Exchange Commission (SEC) on November 7, Seagate claimed eSys officials indicated that an audit would “likely reveal” irregularities in its compliance with the terms of the incentive programme as well as other unspecified irregularities.

Seagate also claimed in the filing that eSys has failed to make full current payments to the vendor. The hard drive specialist said the outstanding balance on its accounts receivables was around US$50million and it has set aside an additional provision of US$40million for doubtful accounts in the quarter ending September 29.

“We recorded this additional allowance due to the inherent uncertainties following the termination of the distribution relationships, eSys’ current delinquency in payments and failure to pay amounts when promised, and eSys’ failure to comply with the terms of its commercial agreements with us,” read the SEC filing.

eSys officials have indicated that it intends to pay all amounts owed and defended the distributor’s refusal to meet the specific requirements of Seagate’s audit process.

One senior eSys executive contacted by IT Weekly sister publication Channel Middle East claimed that the “intrusive nature of the audit” to be undertaken by Seagate was one of the significant factors behind its refusal of the inspection.

The termination of the two companies’ relationship comes only two months after eSys picked up the ‘Number One Distributor Award’ from Seagate for its achievements in the hard drive vendor’s most recent financial year.

Speaking at the time of the award, Vikas Goel, chairman and managing director at eSys, said: “This is yet another testimony of the enduring relationship which has gone from strength to strength since we started six years ago.”

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