Distributor leaves $9M mess in vendor's lap

Distributor leaves $9M mess in vendor's lap

Tabloid has learnt from extremely reliable sources that one of the world's leading IT hardware vendors with a keen focus on notebooks is sitting on a $9 million outstanding debt from one of its prime channel partners.

It is also claimed by the source that revelations of the debt caused the very sudden and very public ending of talks between the distie concerned and a company that at the time was looking at acquiring them. The debt's presence was only revealed to the buyer at a signing ceremony to rubber stamp the deal.

The said distributor has a reputation for cutting prices to the bare bone, and has been dicing with death for a while by selling at cost or below cost and living pretty-well exclusively on vendor rebates. A dangerous game that.

This is a just-manageable methodology that can only exist on a short-term basis in high-demand environments, and is a clear recipe for disaster in a slowing market.

The said vendor cannot or will not foreclose on its channel partner because of the sheer volume of product it is still moving (still at cost or just above cost) and the risk to its turnover and market share figures. When you think about it, it is probably the sensible thing to do too. In these times of a depressed IT market, who could afford to shoot their biggest volume box-shifter into orbit?

Tabloid's source said this particular wholesaler's debt with this particular vendor has been building for nearly two years and has now been plateaued at its current level for close to six months. Current dealings between the two are on a cash-only basis.

Other sources suggest the vendor involved doesn't have bad debt insurance anywhere near as comprehensive as some other ruthless multinationals - like Apple for example. This means it can't just force the channel partner into liquidation because it will leave them with a very dishonourable $9 million hole in its reports to head office.

Anyway, should this vendor get burnt to the tune of nine very big ones - and that is still very much on the cards as all reports indicate the distie is in some serious sheep dip of its own - it would serve them right.

Not only has it been stuffing the channel with old, low-spec stock that didn't sell in the US, it has also appointed way too many channel partners, creating a price war that deteriorated into no margin for anyone except the vendor and certain mass-market retail buddies.

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