Price cuts loom for PC channel as inventory piles up again

Context predicts price aggression as distribution sell-out declines steadily while vendor sell-in grows fast

PC distributors across western Europe could face another autumn of inventory headaches as over-forecasting from vendors and continuing softness in the market caused a stockpile to build up in Q2.

After a tough year for the EMEA PC market in 2011, the nadir of which was Acer's $150m (£95.5m) inventory write-down, a research note from Context indicates that top distributors across the region are once again reporting inventory build-ups, particularly on consumer product. Acer, HP, Asus and Samsung have all been picked out as vendors with excess stock in the channel.

Meanwhile some members of the vendor community have admitted that inventory levels are higher than they would like, according to Context, particularly as they are keen to flush out kit before the Windows 8 launch. The surfeit of channel stock is, in part, chalked up to overly optimistic sales forecasts on the part of manufacturers.

Marie-Christine Pygott, senior analyst at Context, claimed that the channel may need to get aggressive on price to bring inventory levels back to normal.

"According to our channel sources, Q2 2012 has seen a build-up of excess inventory in the distribution channel, particularly in the consumer space," she said. "While this has not reached last year's scale, it gives reason for concern, especially in light of the huge product overhaul we are going to see with the Windows 8 launch later this year.

"Vendors and the channel will need to shift existing stock during the upcoming back-to-school season to make room for Windows 8-based products, and this is likely to be achieved through aggressive price reductions. Based on the current stock situation, we are also expecting to see Q3 pan out softer than Q2 in terms of vendor sell-in."

Bridging the divide
Recent Context numbers showed a chasmic disparity between vendor shipment numbers and distribution sell-out figures in Q2. Looking at a sextet of the channel's leading PC vendors - Acer, Asus, HP, Lenovo, Fujitsu and Toshiba - the figures for western Europe show quarterly unit sell-in rising 12.4 per cent annually, while distribution sell-out fell 14.6 per cent.

The analyst indicates that almost all manufacturers saw a marked difference between the two figures last quarter. This disparity is, on the one hand, attributed to vendors looking to get their own inventory levels in good shape ahead of the Windows 8 launch later this year. On the other hand, disties are finding that the continuing softness in the market means demand is not sufficient to soak up the steadily growing stockpile.

Alex Tatham, sales and marketing director at distributor Westcoast, claimed the UK channel is maintaining more sensible inventory levels than some of its continental counterparts.

"I do not think we [at Westcoast] are excessively stocked in terms of PCs. We are concerned that August will be a very slow month - other than in education - and also that people will not buy before the Windows 8 launch," he explained. "For those two reasons I think it would be very imprudent for distributors to be taking on large amounts of stock."