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Fri 1 Jun 2007 12:00 AM

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Keeping focus

It is no exaggeration to say that the Middle East projector channel is enjoying a second wind that would leave many technology sectors green with envy. The days of cumbersome overhead projectors, acetate paper and thick marker pens are nothing more than a distant memory, replaced by sophisticated models that cater to more than just a classroom environment. Channel Middle East dims the lights to find out what it takes to succeed in the regional projector channel.

Projector vendors haven't just had to build a single channel for their products in recent years, they've had to build several. The evolution of the technology from classroom accessory to corporate companion - spawned by a generation of PowerPoint users - and latterly its meteoric rise in the home theatre environment has warranted the formation of multiple routes-to-market.

Epson, the largest player in the Middle East projector market with a share of 19% last year according to market sources, endeavours to use a separate distribution model for its projectors whenever possible. As well as working closely with UAE and regional partner Almoe - an audiovisual outfit accomplished in areas such as plasma displays, visualisers and interactive whiteboards - it employs at least one in-country specialist distributor to address markets such as Oman, Qatar, Saudi Arabia and Yemen.

"We have projector specialists that are different from the mainline distributors, which carry the printers and scanners," explained Khalil El-Dalu, general manager at Epson Middle East. "Sometimes we do add projectors to the mainline distributors depending on the strength of each local distributor, but the ideal model is to have a projector specialist because they serve a different type of reseller."

We do add projectors to the mainline distributors depending on the strength of each local distributor, but the ideal model is to have a projector specialist because they serve a different type of reseller.

The preference for most vendors is a three-pronged approach using hypermarkets and consumer electronics stores to reach mainstream retail customers and the standard IT reseller channel to attack the corporate sector. Specialist audiovisual resellers are then employed to address high-end and complicated home cinema requirements.

Part of the reason for this clear distinction of channels is the varying degree of skill and added value that can be attached to a projector sale. At the top end of the market, where unit prices exceed US$10,000 for a 6,000 ANSI lumens model, there is considerable pressure on the reseller to understand the intricacies of the product and how it fits into a wider solution. Developing the skills to advise on product installation, screen technology and network connectivity is a vital ingredient of the value added model. "The audiovisual specialists only form around 10% to 15% of the total market, but the best part of this is that the profitability of such channels is very high because the projector is included as part of a total deal," said Manish Bakshi, general manager at the Middle East's number three projector vendor, BenQ.

While connecting a projector to a PC or video may be a fairly elementary task for any IT dealer, the expertise of a highly educated, AV-focused reseller is usually sought when it comes to more demanding environments where training, the correct alignment of the projector with the video source and the fine-tuning of colours is a prerequisite.

"The person selling the projector should also have a knowledge of the various accessories and optionals that go with the projector," said Bakshi. "This could cover the lamps, wall mounts, wall brackets and knowledge of the remote control usage and whether it can work as wireless or non-wireless. Value addition has got to be offered to the end user. For instance, the lamp hour life should always be made very clear because changing the lamp can often cost the end user more than the projector."

As projector uptake has grown in the consumer sector, the Middle East retail channel in particular has found itself confronted by a more educated buyer. This has subsequently placed extra demand on the projector channel.

Sandeep Attri, general manager of the Sony division at distributor and retailer Jumbo Electronics, admits an increasing number of customers are aware of projector standards and use the internet to obtain easy price quotations. "These tools allow them to approach resellers with a clear idea of what they want to buy," he said.

"This is where the reseller needs to have a good knowledge of the line-up and be able to educate the client and add value to the sale." While the breadth of skills demonstrated by audiovisual specialist firms has been built up over a number of years, there is no escaping the fact that selling these devices in the low-end segment doesn't command the same level of know-how. "Most of the resellers in the street just sell the product - they really don't provide technical support or anything more than that," lamented Sanjeev Dua, product marketing manager for displays and peripherals at Acer Middle East. "That kind of thing only tends to come from commercial partners or specialist distributors."

In the UAE, for example, Acer works in close conjunction with AudiViz, a partner that offers AV consultation, design and installations as well as a multi-branded portfolio of equipment. However, Dua believes the majority of resellers still lack a deep understanding of the product because awareness isn't as high as other hardware.

Most of the resellers in the street just sell the product — they really don’t provide technical support. That kind of thing only tends to come from commercial partners or specialist distributors.

"Almost 85% of the movement is on the low-end models," he said. "When it comes to the slightly higher models there is definitely a demand in the market, but the channel probably doesn't realise that is the case. Suddenly you find there is demand for it and the product is not available. It is very difficult to plan for because high-end models are expensive and you can't stock too many at once because the prices come down. The channel in the projector business still doesn't understand the real market potential."

For those who haven't yet embraced the projector market the profit opportunities can be extremely attractive. "The margins for projectors are still two-digit and the total margin that usually goes to tier-one or tier-two is about 25% to 30%," claimed El-Dalu at Epson. "This is because there are many vendors and the volumes are not huge compared to laptops or printers. Each vendor has its own channel, but there hasn't really been a price war, until recently on entry-level. And even then you are still talking about 15% to 20% total margin."

Those in the distribution seat give off a slightly different vibe and argue that making a decent margin from projectors is as much of a challenge as it is with any other technology product. "We are working on the range of 10%, not more than that," admitted Anis Dajani, distribution director at Omnix Media Networks, the regional distributor for US-based vendor InFocus. "And even then you are talking about gross profit, not net," he added.

Harold Fernandes, managing director at UAE AV and Hitachi projector distributor Abcom Solutions, believes margins have decreased as the market has becomes less of a niche sector. "Margins tend to be 5% to 15% depending on which sector you are selling to. It used to be 10% to 15%, but nowadays it has come down to 5%," he said.

One reason for the spike in projector sales is that price points have come tumbling down to an affordable level during the past couple of years. "If you look at the corporate market, three or four years back people were hiring projectors," observed Dajani at Omnix Media Networks. "If an entry-level projector costs US$650 to US$700 and the price of hiring one for a week is US$270 to US$400 then you may as well pay another US$250 and own it."

Other players allege that sharp decreases in projector prices are a thing of the past. "The prices on the projectors have already dropped substantially over the last couple of years - almost 35% to 40% on the entry-level models," observed Dua at Acer. "Right now we aren't seeing any really big drops, just a US$5 drop on a quarterly basis - that's it."

BenQ's Bakshi believes the projector sector is sheltered from the price erosion that has impacted other hardware sectors, such as notebook PCs and LCD TVs. "If you compare the same specs at the start of the year to the end of the year then maybe there is a slide of 20%, but that doesn't enter into the market because the specs keep on enhancing at the same price. Prices do not really fall. For example, the base price of around US$600 to US$650 for the entry-level model in January was still the same in December, but what happens is the 1,500 lumens in January becomes 2,000 lumens by December." For the moment though, the channel's main concern is how to exploit the persistent growth registered in projectors around the region. BenQ cites figures from UK-based research house Decision Tree Consultancy that show the Middle East projector market has been expanding approximately 27% a year in the last two to three years. Similar growth is anticipated in 2007.

It is thought that the total Middle East market for projectors is valued at 160,000 units a year, with the UAE - by far and away the largest consumer of projectors in the region - accounting for around 30% of that figure. "The UAE has the largest requirement due to the penetration rate," said Fernandes at Abcom Solutions. "And being a trading place, most of the projectors are going out of the country. When we sell 100 projectors in the UAE, almost 70 to 80 projectors are going out of the country. Saudi also has a very high growth rate and Iran is growing too. If Iraq opens up then there is definitely a huge market there."

When we sell 100 projectors in the UAE, almost 70 to 80 projectors go out of the country. Saudi has a very high growth rate and Iran is growing too. If Iraq opens up then it will definitely be a huge market.

Dajani at Omnix Media Networks claims that the Iraqi market is already proving to be a key geography after the company shipped more than 1,000 units, most of them entry-level machines destined for schools, into the country last year. He also points to the UAE as a key market and say the company is firmly on track to exceed last year's volumes. "Last year's sales were about 3,500 to 4,000 projectors," said Dajani. "This year, for the first quarter with InFocus, we have covered more than 1,500 projectors so we are talking about something like 20% market growth."

Demand for projectors among home users is cited by Jumbo's Attri as one of the key factors shaping the market. "Over the years projectors have become more of a consumer product in the Middle East and other markets around the world, hence Sony's consumer division has now taken over the responsibility for these products," he said.

"Although the majority of sales still comes from the business and education segments, we see a faster growth rate in the consumer sector. The consumer market for high-end video display systems and equipment is expanding and projectors are a part of that solution package," he added. With the market still at a delicate stage of its development and volumes nowhere near as large as you'd see in the PC space, the projector arena is easily influenced by what happens in the project business, particularly where the education sector is concerned. "In Egypt they have about 35,000 schools. If you wanted to put one projector in each school you can imagine the potential of the market," said El-Dalu at Epson, which counts a 4,500 unit deal with the Egyptian Ministry of Education as one of its major success stories.

As leading players such as NEC, Sanyo and Sharp continue to strengthen their projector foothold, events in this overly competitive landscape are likely to become even more compelling as the market evolves. Much will be determined by the introduction of new specs and technological features.

Experts predict the gaming market will take on more prominence as prices come down further and the shift to wide XGA - the preferred format for Windows Vista - continues to gain momentum. Security and control features are becoming a key factor for the conscientious projector buyer, while the rising popularity of 4,000 lumens and higher models is inspiring some vendors to introduce devices with two lamps. And, in similar fashion to the notebook PC sector, the emphasis is firmly on making projectors lighter and more portable. All this, of course, is being played out in an environment where two rival technology standards - digital light processing (DLP) and liquid crystal display (LCD) - continue to divide the vendor community.

While the outlook for the projector market is nothing less than strong, double-digit volume growth for the foreseeable future, the profitability of the channel is going to be intrinsically tied to the product mix. "The Middle East market is very different from the European market," said Dua at Acer. "The product mix is pretty decent there, a lot of high-end projector sell-out takes place and the margin structures are far better. Frankly speaking, you cannot make very high margins when it comes to entry levels because too many people are in that business. But as you go up the pyramid the competition becomes less. Those products don't just go as boxes, but as part of a solution."

Advancements in technology and a greater awareness of the product's capabilities will clearly safeguard the health of this thriving market, but getting the product balance correct stands to wield the most influence when it comes to increasing the bottom line.

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