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Tue 16 Jun 2009 04:00 AM

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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.

Hard knocks
Khwaja Saifuddin, Western Digital.
Hard knocks
Madhav Narayan, Samsung.
Hard knocks
Hafeez Khawaja, HK Consulting.
Hard knocks
Christian Assaf, Seagate.

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.

Overstocking is the biggest challenge. The channel struggles to make margin out of the business, especially when it is so susceptible to price changes versus supply and demand.

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.Toshiba, which currently works with Avnet, Empa, Expert, Smile and Trinity in the Middle East, will also have to make similar decisions after buying the hard drive business of rival Fujitsu earlier this year. The vendor hasn’t yet revealed what the Fujitsu deal means for its channel strategy in the region, but that is expected to become clear once the acquisition has been finalised in July.

Either way, the company will need to develop a coherent go-to-market plan if it is to take advantage of the benefits that it anticipates from the deal. “Looking at Fujitsu and looking at the channel strategy in the Middle East, we will be the largest small form factor manufacturer in the world of hard disks when we purchase them,” said Philip Walsh, director of sales EMEA at Toshiba.

“A lot has been said about solid state disk overtaking hard disk and we believe it will — in about two decades’ time! But in the medium term the price proposition and capacity points it meets mean hard disks have a relatively healthy future, and the 2.5-inch small form factor is gaining the most traction,” he added.

Despite the economic slowdown the market is growing 7% to 8% — the only region in the world where there is some growth. Everywhere else is stagnant or showing negative figures.

Toshiba has bolstered its Middle East infrastructure of late by opening a hub in Jebel Ali to cut lead times. “We will work with our customers on the forecasts and park products here on a supply basis, which means it won’t take three or four days’ delivery from Europe when they purchase,” explained Walsh. “We need to be fast to market because the region is exposed quite substantially to market movement on supply and pricing.”

Partner programmes have also emerged as a vital part of a hard drive vendor’s armoury when trying to stimulate channel demand.

HGST has just rolled out its first partner initiative in the region, offering PC assemblers and resellers a range of product and marketing resources to help them penetrate the market. It claims the programme differs from those operated by its rivals because it doesn’t tie partners to targets, but instead requests they commit a certain percentage of their overall business to HGST.

“We have extended this programme to different countries, not just the UAE but Saudi Arabia and Egypt,” explained Khawaja. “Under this programme we can qualify OEMs and VARs, identify the business that they are in and support them on those product lines.”

Samsung and Western Digital also share aspirations to enrich their partner schemes, with the latter planning to fine-tune its SelectWD initiative to educate sales people on the differentiating factors and sell-in features of its products. Saifuddin confirms that this is all part of an approach to develop the overall Middle East channel further. “The priority is to achieve more depth in-country so we will be working closely with our distributors to grow the smaller markets that have a significant number, but had been lacking in terms of focus or some sort of in-country handholding,” he explained.

Seagate, too, is seeking to build on the incentive programmes that its Middle East team have cultivated and launched in the market, taking into account the fact that its Maxtor brand still accounts for more than half of its regional business. Its popular ‘Gold Coin’ reward initiative in Egypt has been repeated in Saudi Arabia, while more recently it launched the Rebate Partner Programme for first tier reseller partners capable of shifting more than 3,000 and 5,000 units per quarter.

“We are investing a lot here and more than 60% of the marketing support budgeted for the Middle East, Turkey and Greece region will be spent in the Middle East,” said Assaf. “The main focus is Saudi Arabia and Egypt — which are the strongest markets in the region and where we are not number one — and to a certain extent Dubai for retail.”

Retail is undoubtedly a sector that ranks highly on every HDD vendor’s agenda due to the uptake of external storage devices sold through the consumer channel. “What we are looking at right now in terms of priorities is retail and how we can expand our presence there,” said Narayan at Samsung. “This is obviously because of the growth that is happening in the external storage market. We are investing in retail and this is something that we will do outside of the UAE as well. We had pretty much done business driven out of the UAE, but we are now going in-country into Kuwait, Qatar, Oman and Bahrain.”

Toshiba is another brand that reckons it has seen excellent results from the retail channel, so much so that it claims its market share for external storage devices in the Middle East already exceeds 20%.

Although the vendor supplies hard drives to companies that resell it under their own brand, such as Jarir in Saudi Arabia, Walsh admits the demand for its products in the retail channel is where it sees the real opportunity for its Middle East business.

“We will work with our partners in what I call the bulk hard disk business in order to serve the B-brand external storage business in the Middle East, but our greatest challenge and focus will be on effective market-building for retail. I think we have to admit that this is the most attractive market place.”

Hard disk drive vendors face a tough job in trying to balance an internal and external storage strategy given the notorious volatility of the market they operate in. Harnessing an effective channel model is central to how successfully they navigate that challenge.

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