Editorial: Creditors cry hardest

Editorial: Creditors cry hardest

It is always sad to see somebody exit the market, particularly if they owed you a lot of money. NSW-based component distributor, BCN Technology, became the latest victim of consolidation when it closed its doors on July 31 after 12 years in the industry.

After starting a clone business called Beyond Computers with $US3000 of capital back in 1991, managing director, Ken Lowe, was rightly proud to have built it into a significant distribution business under the BCN banner.

He was the first distributor of Goldstar (now LG) products in this country and went on to land other brand names including component heavyweights - Leadtek and Via - and even Sony. But it is no secret that component distribution has become an incredibly difficult business and Lowe has paid the ultimate price for failing to transition enough BCN business into higher margin categories.

LG clearly had an affinity with BCN for introducing its products into the Australian market and, according to sources, has been left with the biggest hole in its pocket. The distributor owed it almost $1.5 million and very little of that is likely to be recouped, according to the assessment of company administrator, O'Brien Palmer.

While up to 50 companies are owed money, a handful of creditors are out of pocket for most of the outstanding $2.5 million. Major vendor partners are the most likely to be burned but you also have to wonder about some of the larger distributors because many smaller players turn to them for products they don't have access to.

As a component specialist, BCN is likely to have had buying relationships with Ingram Micro and Synnex. Any substantial debts would be particularly worrying for Synnex, which had its bottom line slashed by about $1.4 million at the back-end of last year when Omega shut up shop. That debt had not been insured. Let's hope history hasn't struck twice or, if it has, Synnex has taken out an insurance policy to nullify bad debt.

The other consolidation news in this week's issue sees two security vendors parting company with distributors. It is usually assumed the vendor does the dumping in these splits, but that is not always the case.

Firewall Systems is looking for a new antivirus brand after its relationship with Trend Micro broke down. With two former LAN Systems' bosses running the managed services distributor, it isn't too hard to imagine they baulked at the idea of having to turn away enterprise sales they knew were ending up with their old employer.

The other contract to be ripped up was between LAN Systems and WatchGuard. While the two companies parted with a big hug and wished each other best of luck for the future, it is another example of three being a crowd in distribution for all but the largest vendors.

It makes sense to focus resources on a smaller number of distributors and it is something we can expect to see more of as consolidation continues to bite.

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