We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Thu 30 Nov 2000 04:00 AM

Font Size

- Aa +

Holding up the White Box

The supply of hard disk drives in the Middle East is adding to the difficulties already being experienced by white box assemblers—slowing down the rate of assembly. And vendors say it won’t get any better in the short term.

The supply of hard disk drives in the Middle East is adding to the difficulties already being experienced by white box assemblers-slowing down the rate of assembly. And vendors say it won't get any better in the short term.

Sameer from Quality Computers interrupts a conversation with CRN reporters to take a call from a customer looking for a quote on locally-assembled PCs.

A brief look around the showroom indicates that he is certainly capable of building them. Boxes of components, cases, monitors, keyboards and everything else he needs to build systems are stacked everywhere.

Or so it would appear.

Things are a little tougher for Sameer than that however, in the middle of November 2000. “I can offer you 30 GB,” he says, in an apparent effort to up sell his customer to a higher-capacity and higher-margin hard disk. It sounds like entrepreneurial spirit.

It is actually more like desperation.

There are no hard disks in the channel, and assemblers are facing a difficult period of business. By mid-November, hard disk makers had already had their distributors and wholesalers on ‘allocation’ for more than two months, and assemblers were clearly feeling the pinch. But this time, allocation is more than merely seasonal. Hard drive makers simply have not manufactured enough this year.

Let’s back up a little. Allocation is the act, carried out by hard disk manufacturers, by which they literally allocate what is available to their channels on a weighted basis. It happens particularly at this time of year because big OEM PC partners such as Dell, Acer, HP, and Compaq, buy more disks than usual from Seagate, Western Digital, Quantum and Maxtor, in order to build more PCs for the end-of-year holiday rush. Simply, that results in fewer disks available for the rest of us, and these come at distributors in spurts.

Dubai-based PC assemblers such as Quality Computers, Cubic Computers, MST, and others, told CRN that there are no 10 Gbyte disks to be had at all. One assembler told CRN that he had had 500 10 Gbyte Quantum disks on order for six weeks, and that the order was still pending, creating a drought that severely hampers his ability to sell to budget customers. But whilst he seemed able to source 20 Gbyte disks from his Quantum distributor with little difficulty, a rival up the street said he couldn’t get hold of any. 30 Gbytes was the lowest he could do, but at a price of US$625 for a single disk, that almost doubles the price end users are willing to pay for a low-cost PC.

And the problem isn’t going to get any better in the near term. 2000 has seen a very specific component shortage which has left hard disk makers struggling for allocations of their own so that they could manufacture.

Seagate’s sales manager for the Middle East, Donna Marsh, told CRN that component shortage has made things worse than normal. “We have been in allocation for slightly more than two months now, and when I say we, I am not just referencing Seagate, I mean the entire industry. We all tend to go into allocation within a few days of each other basically. The main reason in addition to seasonality is the shortage of a chip which ended up being single source risk for all of us. And that has really made it worse than it has typically been,” Marsh says.

Seagate says it took steps where it could, and stretched its supply lines to the extent that they would stretch. “Here is what has happened: we knew in advance there was going to be a chip shortage in addition to the traditional stuff. And what I did was luckily inform all of my [resellers that is was coming], and to do their very best to take as much supply as they can, while it still exists. And unlike the European summer people where they basically go to sleep, [the Middle East market] works all year around. So for the most part, distribution throughout the Middle East took advantage of that and overstocked, basically. So they were able to limp along longer than traditional distribution throughout other regions,” says Marsh.

“Now, does that mean that was enough? No. Because over the last short while, inventories for everybody including the resellers in Dubai and Egypt and all over the Middle East have also suffered very seriously. Basically, people are out of stock, there is no doubt about it,” says Marsh.

“Now, good news, is that within the past week or so, we have started to ship—in very poor numbers, I will be honest—but we have started to ship again the latest U5, which is our 20 Gbyte per platter drive into the distribution channels. I am pleased to say that because of the urgency of Ramadan that we have made as much of the Middle East as possible, top priority. So we are doing our very best, though it is nowhere near the numbers that we would like,” says Marsh.

Quantum distributor MTC, a relative newcomer to the hard disk game told CRN it still has disks in stock, though it was struggling to get enough to match market demand. “Allocations are getting better and better, but they still don’t match the demand in the market today. But we still have hard drives in stock,” Mohammed Rizwan Noor, general manager for MTC told CRN.

But not enough of them. And in a manner of speaking, the shortage this year hasn’t been the hard disk vendors’ fault. The shortage of a single component goes to show how fragile the market can be, when things don’t run exactly according to plan.

Perhaps it is safe to say that those uncertainties may be somewhat of a thing of the past however. Western Digital’s Ken Larsen told CRN that price increases have brought about more industry stability than has been felt for the past two years, ending the bloody battle that has wrought mayhem in the disk business.

“What has happened over the more recent time—it has always happened to a certain extent, but the last two years has been particularly brutal—is that PC companies have put the squeeze on disk drive companies to offer faster, bigger drives at a lower price. We in turn down the chain, put the squeeze on our component suppliers, give us better technology, faster delivery, and a lower price. And all that squeezing has come down to the point where at the component level, these companies have been squeezed out, have been forced into supplying their components to other businesses where they could make better profit margins,” Larsen told CRN.

“The number of component suppliers has reduced to fewer and fewer, and finally, I think it hit a bottom this summer, where they all said enough is enough. They said, ‘We can make all the silicone we want for the consumer electronics and mobile phone industries, we can make heads for optical and other things, we can use our factories to supply other components at much better prices, and raise ourselves up from nearly being bankrupt,’ by moving away from the hard disk industry,” he added.

“So that whole thing has caused us to raise our prices just to stay even because our cost of material has gone up. And it has forced the PC companies to think, well maybe there isn’t such a thing as a $300 PC that I can make millions of dollars of profits off, maybe it is such a thing that I am making really lots of losses, maybe a PC has to be $700 to $1000 per PC in order to do it. So from the ground up it has forced every piece of the food chain to force prices up and maybe we’ll see some stability,” says Larsen.

Stability is what SMB Distribution, the agents for Samsung hard disk drives for the region says it has achieved from the start. “There is a key issue: Samsung has capabilities as a manufacturer of those critical components which the other manufacturers have to outsource,” K. S. Vasudevan, general manager for Peripherals Gulf Limited, an SMB Distribution company.

“Samsung makes everything. There is no question of a component shortage affecting Samsung, so availability of the product is guaranteed. That is why when Seagate or Western Digital or Maxtor has a problem with availability, we will still be able to supply,” added Seyed Ibrahim Bukhary, director, SMB Distribution.

To that end, SMB says, there is no real shortage of Samsung drives, and the company sees this as a real opportunity to grab market share. “This is a good time. We have a good product we can push to the channel, we have a good chance of turning partners to Samsung,” said Bukhary.

“This is an opportunity for us to grab assemblers that haven’t tried the Samsung product,” said Vasudevan. That may work too. Allocations are not likely to ease substantially until the new year and by then, the landscape may have changed substantially.

Arabian Business: why we're going behind a paywall

For all the latest tech news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.