Madge Networks turned in disastrous results for its second quarter and admitted that the fact it dropped Vars in favour of the direct sales approach was responsible for the $5.5 million loss.
At a conference call, Robert Madge, chairman of the company and one of the richest people in the UK, said: 'This quarter our sales have fallen off a cliff at a time when we have been planning for strong growth. The net result has been disastrous for our earnings and it's deeply embarrassing.'
The company admitted its channel strategy had not worked. When it bought Lannet last year, it cut out Vars and decided to sell direct, producing conflict in the channel.
'We miscalculated the impact of the channel on our business, particularly in Europe,' said Madge.
'The decision to fulfil direct was made in part because we felt that by doing so, we would be able to partially finance the increase in sales and marketing expenses.'
Two years ago, Madge removed itself from two-tier distribution with Azlan, one of the chief victims of the move. A source at Azlan said: 'This is a clear message that if you stay in two-tier distribution and do well, the channel will stand by you, otherwise you'll get stiffed.'
The company's global sales were also down. Net sales in America fell nine per cent to $43 million. It was worse internationally, with sales down almost 20 per cent to $67.2 million.
Madge added that the company will now attempt to sell through its Var partners afresh, but also maintained it will sell direct. 'We are re-engaging with our partners and will adopt a team-selling approach. In addition we will be adding a number of new Vars to our sales team.'
The Azlan source claimed that his company had helped build the Madge business to the level it reached. Last week Computacenter claimed it was doing good business distributing Madge kit.
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