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Thu 1 Nov 2007 04:00 AM

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The VGA card market is standing at the foot of a mountain of change. New and improved consoles are entering the markets stealing the thunder of PC game developers while mainstream users are desperate to unlock the graphics quality of the latest software innovations for their PCs. So what does it all mean for the Middle East channel?

The graphics market has not been a prosperous arena for VGA card manufacturers of late with consumers preferring to settle for their existing specifications instead of upgrading their PCs graphics capabilities, according to some components sources in the channel.

Najib Nesrini, regional sales manager at Foxconn Middle East, says the VGA card channel has been running against the wind for the past three years. "Chipset makers like Intel, AMD-ATI, Nvidia and SIS have offered built-in graphic GPU platforms where performance was fairly acceptable for most day-to-day PC users," he said. "The graphics card industry serves a small share of PC users who heavily use graphics-dependent applications - like gamers and designers - but not really notebook users, or even in government projects."

Try to sell a VGA card with the lowest return rate. Look for things like the quality of the brand and look for things like fanless coolers, because the fan will inevitably fail.

However, the market is reaching a turning point with the introduction of new technological innovations propelling demand. According to Gautam Srivastava, vice president for sales and marketing and managing director for the Middle East, Africa and Pakistan at CPU manufacturer AMD, technologies such as Windows Vista software and high-definition video have been prompting consumers to raise expectations in terms of the graphics quality they attain from their PCs.

"Demand for VGA cards is growing as more end-users take on Vista," he argued. "HD-DVD and Blu-Ray are now becoming commonplace in the home, so the requirement for ATI Radeon graphics to drive these technologies is a must." And as the internet transition continues in the form of ‘Web 2.0', new interactive applications, which are capable of delivering high quality graphics, are driving consumers to buy VGA cards, says Varun Dubey, product PR manager India and Middle East at chipset and GPU manufacturer Nvidia.

"In the applications today - whether it is Google World, Google Maps, iTunes, Adobe's image applications or even Windows Vista - 3D graphics are becoming more mainstream," explained Dubey. "Image management is also becoming more 3D, and users are definitely seeing a need for improved graphics capabilities," he added.

And this is a view shared by resellers, says Tim Handley, marketing manager at VGA card vendor Gigabyte United. He reveals that the vendor's partners are seeing an increase in sales due to the popularity of Windows Vista in particular, and reckons the Middle East graphics card market is beginning to mature as mainstream users begin to develop a real hunger for the latest VGA cards.

"When we go to exhibitions or roadshows, a lot of resellers are telling us they can see a difference because of Vista," he said. "So the graphics card market is maturing because there's more demand for it, not just from the gaming segment but from the upper-mainstream market as well, and I think it's really starting to show in the Middle East."

Werner Penn, Middle East sales manager at VGA vendor Palit, admits that by providing more sophisticated chipsets into box-standard PCs, the likes of ATI and Nvidia may be causing demand for independent VGA cards to slow down, but it is not closing the door for VGA card manufacturers entirely.

He reckons the market environment is evolving to represent a more graphics-friendly ecosystem, and motherboards on the market can make use of technologies from a variety of vendors. "The VGA ecosystem is moving toward integration or exploiting motherboard portfolios to provide total graphics solutions or one-stop-shopping for their downstream sub-systems," commented Penn.

A key factor in this market has traditionally been the health of the gaming market, with gaming enthusiasts demanding the cutting-edge quality cards to deliver superior graphic detail. Gigabyte's Handley doesn't consider the Middle East as one of the most avid regions when it comes to gaming, but reckons the gaming community in the region is positively on the rise and represents a huge opportunity for the retail channel.

"The perception is that there's not as many enthusiasts in the region as there is in places like Australia, Europe or the USA, but it is starting to pick up," he said. "The Middle East is a tough market when it comes to gaming because a lot of games have content that doesn't go down too well in the Middle East. A lot of games are banned in the Middle East but we're starting to see demand grow now."
However, a number of channel sources argue that with the sophistication and quality of new gaming consoles - such as Sony's Playstation 3 and Microsoft's Xbox 360 - coming onto the scene in the Middle East, popularity for PC games is beginning to fade.

However, Nvidia's Dubey anticipates that PC gaming will remain a favourite amongst enthusiasts as it offers elements that consoles cannot, and therefore expects the emergence of new consoles to have a limited impact on demand for graphics cards. "I think there's certain game formats that are good to play on the console, and there's no denying that," he admitted. "If you look at it from the perspective of a mainstream user, it is far easier for them to play on a console. They don't have to assemble it or install much software. But if you are playing a first-person shooter, which is one of the most popular types of game, the experience on a console controller is not that great, despite the launch of new consoles."

A good reseller is like a good sommelier — always listens then recommends a good match from the available list to pair with the customer’s menu instead of the most expensive option.

VGA vendors are full of advice for resellers, citing a number of ways to make profit from the hardware. Gigabyte's Handley reckons that avoiding convoluted technologies means a reseller can keep customers happy and project a strong reputation whilst minimising maintenance and repair costs.

"Try to sell a VGA card with the lowest return rate. Look for things like the quality of the brand and look for things like fanless coolers, because the fan will inevitably fail," he advised. "While upgrading to Vista, people are looking for three or four years before upgrading - they're looking for longevity - so that means fanless coolers and low RMA rates." Another way to maximise profitability in this segment is by clearly spelling out the advantages of different technologies offered by the multitude of products in the market. AMD's Srivastava says product positioning is vital for a consumer to know exactly what card will match his needs, and urges channel partners to provide live demonstrations to shoppers in their outlets.

"One way to maximise profit is through the different positioning of VGA cards," he said. "For example, displaying passively versus actively cooled, a multimedia solution versus a gaming solution. Also, it is crucial that resellers demonstrate VGA benefits with other products in their displays. They should create dedicated systems to explain benefits."

A clearly laid-out shelf stack and demonstration alone is not enough to really boost sales, however. Resellers also need to adopt a personalised approach to their sales strategy, insists Penn. "To successfully sell a VGA card requires some finesse," he said. "Apart from a friendly smile and tons of patience, don't rush to show off how good a computer expert you are. Most importantly, listen to your customer's demands. A good reseller is like a good sommelier - always listens then recommends a good match from the available list to pair with the customer's menu instead of the most expensive option."

Penn also reckons there is a consensus amongst Middle East consumers that size is the clinching factor for VGA cards, as opposed to the overclocking capabilities of the chip. He calls on resellers to eradicate this misconception. "Does size really matter? Consumers pay you an inquiry, they deserve a bit more of a professional service. It is the ideal time to demonstrate your knowledge and expertise on graphics technologies. Make yourself a credible referee," he added.

Vendors suggest that another ploy for resellers to win over customers is to bundle the VGA cards with complementary products. Vendors often combine games with their VGA cards in an effort to maximise sales, and resellers can further extend this approach to drive the growth of the segment.

"Bundling games is a good strategy because the gaming market is growing, and the consumer feels like they are getting something for free with their VGA card," said Gigabyte's Handley. "But not all games are suitable in every region; that's a huge issue. Maybe at a reseller level, they can decide which games to bundle to identify which are the most culturally acceptable games."

A major challenge for resellers in this market is the short product life cycles of VGA cards, arising from the sheer speed of innovation. "These days we do quarterly trainings with Intel," said Handley. "Four years ago, a motherboard would have a shelf life of two years or more but now some motherboards have a shelf-life of just three months. New chipsets are coming out so quickly and over the next few years it is going to get even faster," he warned.

And vendors concur that it is vital for resellers to get up to speed with the latest technology despite the exceptionally fast pace of innovation in the market. Although enthusiasts tend to know exactly what they require, resellers stand to lose out on the wave of new mainstream consumers if they do not possess an in-depth knowledge of the technology for themselves.
According to Nvidia's Dubey: "You can divide customers into two categories - those who are tech-savvy and come into the store knowing what they want and those who know what they want to do but don't know how to achieve it. Matching what the customer wants to do with what they need to buy is a skill that resellers needs to have."

Nedim Yilmaz, regional manager at VGA card manufacturer Zotac reckons it is imperative that resellers get educated, but admits it is the vendors' duty to take on the role of educating the channel.

"The reseller needs to get educated on a general level to help the customer, and Zotac will deliver many tools for the reseller to understand technology and gain the right details," he said. "The reseller also has to realise trends like the silent market for home theatre solutions to advise the end-user with appropriate solutions."

Seminars and training are important. The chipset makers like Nvidia and AMD-ATI should take on the responsibility to organise regular events educating resellers in the graphics card business.

Foxconn's Nesrini acknowledges the importance of education in this segment but believes chipset makers are currently not doing enough, and urges them to take a more active role in driving awareness of their new technologies throughout the channel.

"Seminars and training are very important here, and I believe the chipset makers like Nvidia and ATI should take on the responsibility to organise regular events educating resellers in the graphics card business," he said. "Every month there is a new chipset and this requires an enormous effort to keep resellers updated," he added.

Gigabyte's Handley urges resellers in the Middle East to take heed of the annual cycle vendors see in this segment to facilitate forecasting. He reckons that as vendors in the market often align their product releases to worldwide technology exhibitions, resellers can anticipate what to sell and when.

"In January every year, the big companies like Intel, AMD and Microsoft start to talk about their new technologies at the Consumer Electronics Show in Las Vegas," he said.

"Then in March, there's CeBIT in Germany where these companies showcase the first working samples of their technologies. In June there's Computex in Taiwan, and that's where Intel and AMD will launch their new chipsets and that's when we are allowed to launch our motherboards, so June is when the sales pick- up and the upgrade cycle starts every year.

He also advises resellers and distributors in the Middle East to look towards Egypt if they want to capitalise on a burgeoning market. "The fastest growth in the VGA card segment would be Egypt," he said. "In Egypt, gaming is really hot at the moment. There has also been a high level of broadband rollout and that's certainly helped," he added.

Vendors reckon that although the Vista effect has begun, it isn't likely to be until next year before Microsoft's new operating system drives demand in the graphics card channel. "Sales will remain stable for the next six months, but after that sales will increase due to the influence of Windows Vista," said Nesrini at Foxconn.

The future is certainly laden with opportunities for resellers of VGA cards, particularly as consumers gravitate towards more visually sophisticated software. Zotac's Yilmaz even tips the VGA market to outpace CPUs and hard drives in terms of growth. "After the launch of Microsoft Vista and its DirectX10 technology - and as the popularity of PC and TV connection increases sharply - people are experiencing being one step ahead of real world visuality through their screen and sooner or later, a significant number of end-users will be upgrading their VGA cards," he predicted. "You do not get the best performance increase by upgrading memory, processor or hard drive but by upgrading the VGA. This means resellers need to be aware of understanding the end users' needs and respond to that­­ appropriately," he concluded.

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