Argos "deeply disappointed" in fallen tablet maker KMS

Withheld £3.2m payment from Argos forced under Brit tablet maker and distributor

Tablet maker KMS Components went under because Argos withheld £3.2m from the business following a row over its tablets being incorrectly licensed with Google.

As revealed by CRN, KMS was forced under by a cashflow crisis on 8 January and administrator Deloitte is currently courting buyers for the Cardiff-based outfit's assets.

At the time, details were thin on the ground, although sources laid the blame at the door of an alleged licensing quarrel with Google and subsequent bust up with Argos - its largest customer. Argos declined to offer a meaningful comment in our initial story.

But now more details are coming to light following the publication of a Guardian article this week detailing the events that led to KMS' demise.

Documents seen by the broadsheet reveal that Argos withheld £3.2m from KMS because the tablets KMS were supplying it with did not have the required Google Mobile Services (GMS) license. This includes stopping a cheque for £850,000. The story didn't exactly paint Argos in a favourable light, with KMS claiming the retailer had been made aware of the licensing issues since July 2012.

The gist of the story was corroborated by a source close to events CRN contacted today, who spoke to us on the condition of anonymity.

"Fundamentally, Argos took the decision to shut KMS down," said the source. "Argos took a commercial decision and didn't want to take responsibility for selling a product that didn't have a license on it."

According to our mole, the GMS licensing spat involved not only the CnM-branded tablets KMS had been supplying to Argos for two years, but also Argos' own-branded MyTablet, which was launched last October. Even though Argos made these under its own Bush brand, it outsourced the assembly to KMS.

Argos sent us the same canned quote that was featured in the Guardian article when we asked it for comment. The retailer said it had been "deeply disappointed that [KMS] breached certain provisions in their agreement to supply products to Argos".

It added: "Due to potential legal proceedings we are unable to comment further. Argos customers are our priority and they are unaffected by our dispute with KMS."

Deloitte told us earlier this week that it had received expressions of interest in KMS' business from 40 parties, several of which are thought to be serious.

Despite the licensing issues, the more-than £1m of tablet stock KMS has sitting in its warehouse could still be attractive to a buyer, our source said.

"The only thing you'd have to do is make a software change," he said. "You could strip Google Marketplace off and replace it with an Amazon front end. Or you could go to [contract manufacturer] Foxconn and give them the tablets and go through the process."

KMS' collapse immediately led to the loss of 34 jobs, with the remaining 21 staff retained for a short period to handle returns.

Steve Bland, who was one of four directors at KMS, recently secured a role at graphics card vendor Nvidia.

"KMS had a great team and fortunately the majority of them are picking up positions in the industry," said Bland, who refused to discuss the events that led to KMS' demise.

Bland will take up his role at Nvidia of northern European sales manager, key accounts on 3 March.