Gray Market Expected To Flare Up As Result Of Suspected Product Hoarding

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Gray market expected to flare up as result of suspected product hoarding Amanda Stirpe

San Francisco - Vendors are hoarding components in anticipation of a potential sales spike after Jan.1 and transportation snafus that could result from year 2000 non-compliance, said channel insiders.

This, in turn, has sparked a debate over a possible associated rise in gray market activity, a development that could make for an unstable component pricing environment in the first months of 2000.

The gray market, also called the open market or brokering market, supplies low-cost components to white-box or small-business vendors for the manufacture of inexpensive PCs. The gray market often offers lower prices on products that come from excess OEM inventory. The trade-off is these products usually are not under warranty.

One major PC manufacturer said Y2K lockdowns and possible hoarding of components by vendors until after the new year could lead to a rise in gray market. The Cutter Consortium, a market-research company in Arlington, Mass., said more than half of the companies surveyed have put a freeze on their systems purchases for the final months of the year.

Compaq Computer Corp., Houston; Hewlett-Packard Co., Palo Alto, Calif.; NEC Technologies Inc., Itasca, Ill.; and IBM Corp., Armonk, N.Y.; would not comment.

White-box VARs and integrators said they have heard vendors may be holding products as the new year approaches.

Anne Cole, director of purchasing for PC Build Network Centers, a white-box VAR in Needham, Mass., said she has heard rumblings of hoarding but has not seen the effects of it yet.

"The way I look at it is that hoarding is very dangerous and it does not strike me as good business," Cole said. "As a VAR I would be angry if I knew that a vendor was hoarding and then dumped into the gray market because it would be very apparent as to what they were doing."

The types of products purchased through the gray market by PC Build include memory and CPUs, depending on price and availability, Cole said.

Frank Abate, sales director for Infinity Technologies Inc., Mississauga, Ontario, said the repercussions could ultimately result in an absence of real value for the components, he said. "Components are a perishable commodity," Abate said. "You can't have a much better sales day tomorrow to make up for today."

If vendors are hoarding product, most likely it is with the intent of protecting their largest customers, Abate said. Infinity Technologies itself is stockpiling some components to compensate for that and take care of its customers, he said.

The impact of the Taiwan earthquake last month may have lead to thinner supplies, which could exacerbate the problem, said Frank Cavallaro, vice president of sales at NECX Global Exchange, a privately held open market company.

Last minute compliance will lead to a mad rush in purchases as the millennium draws near, said Robb Auspitz, owner of Robb Auspitz Consulting, a white-box VAR in Fort Washington, Pa. This could lead to stockpiling components, he added.

"Vendors get feedback from resellers who say there are plenty of people who are holding off [to comply]," Auspitz said. "Smaller companies and government agencies will come in after the belt when they find out that the clock did not roll over and then they'll be jumping."

http://www.techweb.com/se/directlink.cgi?CRN19991101S0009

-- LOON (blooney10@aol.com), November 02, 1999


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