Osmosis is the latest components distributor to run into problems after trade insurer Gerling Namur withdrew part of the company's credit insurance.
Are distributors in this sector running for cover, and if they are, how will this affect the components market in the longer term?
Firstly, it is clear that when a business loses its trade insurance, it has a problem - namely that if its ability to buy product is restricted, it cannot trade normally. Credit is the lifeblood of the channel and in the high-volume, high-turnover components business, liquidity is even more critical.
Whatever the circumstances behind Osmosis' plight with its insurers, it is difficult to deny that it is hurting. The extent to which it is affected depends on how much credit it has lost and for how long the situation will persist. Understandably, Osmosis is tight-lipped on both these points.
Alex Campbell, marketing director at Osmosis insisted that the distributor was still trading normally. He blamed the company's problems on 'rumours' that had circulated, leading to 'jumpy' insurers pulling cover.
Campbell also claimed the person who dealt with its cover at Gerling Namur had gone on holiday immediately after it was pulled and without contacting Osmosis to assess the validity of the rumours.
'When Roldec and Memsolve collapsed, it cost the insurers millions of pounds, so they are now a lot more cautious,' he added. 'The market is not very buoyant at the moment and they don't want to get hit again.'
One industry source agreed: 'The important thing to get clear is that specialists are underwriting the market and they know when businesses are in trouble. Insurance companies are being more careful.'
In theory, it is perhaps natural to blame trade insurers for squeezing, or at least scrutinising, credit limits more closely. It is true that they have been hit hard in the past few months, but it must not be forgotten that tighter credit means businesses have less cash to pay insurance premiums.
Insurers must take a measured view of industry conditions and avoid falling into the trap of talking the market down. The fact is that there are still plenty of businesses out there making a lot of money.
Industry insiders have claimed John Fenton, managing director and majority shareholder of Osmosis, is looking to sell at least part of the group, which has a combined turnover of #200 million, to tackle its problems.
Campbell refused to say whether or not Osmosis was in talks with any potential suitors, but sources have pointed to a broadliner as the most likely buyer.
Computer 2000 is an unlikely candidate following its recent purchase of Eurodis Onboard and the same can be said for CHS Electronics which bought Karma in 1997. Ingram Micro already has a components division, while Datrontech would have too similar a customer base to that of Osmosis.
As far as UK players are concerned, that leaves Ideal Hardware and Northamber, and it has been pointed out that Osmosis' OEM Microsoft business would fit in very nicely at Northamber.
It is only useful up to a point to speculate who, if anyone, might be taking an interest in Osmosis. But it is interesting to analyse the growing trend of broadliners snapping up component specialists.
The advantages of having a components operation for a distributor looking to establish an international presence in all niche markets are tempting.
Apart from the 'finger in all pies' argument, a good components business will generate a great deal of cash, especially in the high volume brokerage sector.
This may also have the additional benefit of topping up rebates and consolidating the distributor's relationship with the vendor.
Also, as broadliners increasingly move towards white box manufacturing and channel assembly, a healthy components division will trim costs in an increasingly price-led market.
Finally, it harnesses the power of the vendor because the fewer players it has to deal with, the more it can dictate the terms under which products are sold.
At the high end, vendors like to shout about their value-add benefits and certainly this message has helped consolidate many positions. If they can sow up the low end, high-volume market as well, then this puts them in a strong position for every deal.
Broadline distributors will say they offer resellers more stability in a highly volatile market than their smaller counterparts and argue that they are in a stronger bargaining position with vendors. That broadliners benefit from consolidation is not disputed, but there is a strong argument that it suits vendors even more.
Whatever the fate of Osmosis, there is little doubt that the components market is concentrating into a channel increasingly dominated by the big distributors.
For how this will continue to affect the smaller players in the market, watch this space.
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