We are, it seems, in an economic boom. But I?m seriously concerned about the UK computer industry. If we can?t clear out the stock in the channel this autumn, we could have some very serious problems on our hands ? particularly in the distribution sector.
Right now we have a channel stuffed full of product, but buyers are holding back. At first, this was due to pre-election uncertainty; now people are worried about interest rates and EMU, about network computers and, most significantly, about machines becoming obsolete too quickly.
Meanwhile, the pound is riding high. With house prices in recovery, and building society windfalls boosting high street spending, the UK?s balance of trade is under pressure. The Bank of England has raised interest rates twice to curb spending, but that has made the pound even stronger, so imports are cheaper and exports more expensive. This has already hit the value of the stockpiles sitting in vendor and distributor warehouses in the UK.
In spite of the cheapness of imported stocks, the sluggish market is depressing component sales and putting distributors under pressure. More users seem to be turning to leading brands ? Compaq, IBM, Dell, Gateway 2000, HP, Digital. The systems builders are suffering as a consequence, further depressing component sales.
According to one trader, an off-the-page clone dealer which had planned to do #8 million of business in May took orders for only #800,000 of equipment. The top brands are almost as cheap as the ?vanilla? systems, there is more awareness of the cost of ownership and PC users are playing safe.
Intel is more responsible than any other vendor for the bloated state of the channel. In the course of just a few months, Intel has released three new processor families: MMX, Pentium Pro and P2. Users have deferred buying decisions because of this, and vendors have had to rush new products to market to stay competitive.
Partly as a result of over-driving the market, Intel has suffered a fall in its Q2 earnings. It was planning some serious cuts anyway at the end of this month, but Intel is now going to slash most processor prices in half; and it?s going to bring in 300MHz processors within a few weeks.
For those in the channel who have been left with stock on their hands, it could be fatal. The most likely casualties are the off-the-page sellers of PC products that are not recognised brand names. We already know that users are happy buying direct, and the chances are that Compaq and other leading vendors will start to offer a direct sale/fulfilment-only-by-the-dealer type of service for the UK.
The flood of products sent into the channel does no one any good. It inhibits the ability of distributors and resellers to make decent margin and keep up the levels of service. That?s not good for users. It also starts to fall back on the vendors; those that can?t shift stocks must either scale back production or take a big hit on inventories.
But the ultimate responsibility must lie with the company with the most influence on the pace of the market ? Intel.
Why can?t Intel give us advance warning of its development and release plans, so we could all see what was on the horizon and know how long the useful life of a PC was going to be. Why can?t Intel stick to one major processor release every, say, six months? Instead of making small hops forward ? from 100MHz to 133MHz, to 150MHz, 166MHz, 200MHz and 233MHz ? we could take one big leap forward. And why can?t we just have two or three models in production at one time, instead of about a dozen?
All right, we do need the low-powered versions of notebooks, but why do we need so many varieties on the market, and why this constant stream of new introductions? What is Intel scared of? AMD, Cyrix or Digital?s Alpha? I don?t think so. Its problem is Wall Street. But a well-prepared announcement could break the financiers in ? look at how Microsoft is teeing then up for its expected fall in earnings over the next year (although cynics say that it is talking stock prices down to make fulfiling its stock options to employees less expensive).
Intel can?t bring down the value of sterling, but it can do something to end uncertainty among buyers. It is time for Intel to take its responsibilities for the health of the IT industry?s manufacturing sector and delivery channel as seriously as it takes its responsibilities to shareholders.
In the long-run, looking after the channel would be in the best interests of the stockholders anyway.
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