Enterprise connectivity and Web camera manufacturer Axis Communications has posted its second consecutive quarter of revenue losses. This has a former exclusive distributor claiming vindication of its long-term view that Axis over-distributed its product and effectively left distributors holding the can.
As the full weight of a downturn in the print-server and office connectivity market opens old wounds between Axis and its former, now defunct, distributor Intelligent Technologies, resellers are left to wonder what happened?
Axis posted record losses for the first quarter 2001 as its share price plummeted from a high of around SEK60 (Swedish Krona) after its IPO on the Swedish Exchange in June 2000, to its current value of around SEK13 ($2.5).
The company attributes its considerable quarterly losses to investment in its struggling Swedish e-commerce subsidiary Netch, but also acknowledges a heavy profit slump in its traditional print-server business.
Locally the results have re-ignited a war of words between its former distributor Intelligent Technologies, which claims the vendor's dwindling fortunes are "indicative" of a business strategy that saw Axis expand its distributors in Australia from one to four in 24 months.
According to Ian Degarnham, former managing director of Intelligent Technologies, the vendor took on a philosophy of appointing multiple distributors in 1998, which caused a price war between Axis' Australian suppliers, and cost Intelligent Technologies thousands.
"It ripped away our business overnight," claims Degarnham. "They genuinely hurt us, by up to hundreds of thousands of dollars."
Degarnham argues the ensuing price war between his distributorship, storage distributor Optistor (SCSI Corp at the time), networking distributor LAN Systems and Melbourne-based imaging distributor Alloys International, failed to create a larger market for Axis products, and effectively left distributors dumping product on the market at cost.
"All that's happened is no-one is contributing to a larger pie. So when I went out and sourced competitive products, [Axis] got really dirty with me," he added. "The Australian market is indicative of what [Axis] distributors face worldwide."
Chris Jefferis, area manager of Axis Australasia, hit back at claims the vendor diluted Intelligent Technologies' market share and caused a price war between its recently appointed distributors.
Jefferis dismissed claims that the company's share price slump and a rationalisation in Asia - which saw the closure of a number of regional offices outside of Australia - had anything to do with the number of distributors Axis appointed in any one country.
"Axis has been very deliberate in choosing distributors for specific markets," claims Jefferis, with Optistor appointed solely for Axis' CD-ROM network-attached storage products, and LAN Systems appointed for the vendor's network Web cameras.
However, Jefferis admitted that should an Optistor or LAN Systems reseller express an interest in purchasing other products in the Axis range, they could do so from either of these distributors. With Optistor's cross-selling potential into storage, and LAN Systems' influence in the market, the perceived threat felt by Intelligent Technologies is easily discernable.
Meanwhile Robert Ek, general manager of Optistor, is also reluctant to commit support to Axis' distribution strategy. When questioned, Ek agreed with Degarnham that the Australian market is too small to support the number of distributors used by Axis. However, he attributes the vendor's current market performance to a general downturn in print-server sales.
Jefferis maintains that Intelligent Technologies viewed the opening of an Axis office in Australia in 1998 as hostile, and subsequently undercut the appointed distributors. This has effectively brought about an unwillingness for Axis' other distributors to actively promote the product on the grounds that Intelligent Technologies would steer customers away from Axis products, or poach customers based on price at every opportunity, just to harm Axis' market share, claims Jefferis.
Intelligent Technologies has since filed for liquidation in January of this year, citing an "exceptional tax ruling dating back five years" (as reported in ARNnet January 19, 2001), owing creditors, the Australian Tax Office and Axis "a considerable sum".
Meanwhile, Intelligent Technologies' Degarnham has revived trading of a former company Intechnet, which, according to Degarnham, was originally established to distribute Axis' print-server range nine years ago. Since January, the company has continued to supply former Intelligent Technology customers with Axis product sourced from Europe, the US and Axis' Web site, without going through legitimate Axis channels in Australia.
Interestingly, Jefferis is in fact still a listed stakeholder in Intechnet, having previously worked for Intelligent Technologies under Degarnham when the two set up Intechnet as a joint venture. Jefferis claims he is trying to disassociate his name from Intechnet through legal proceedings.
"This is something that there are nuances to, that suit personal agendas," Jefferis told ARN. "I declared my complete and utter disassociation from the company Intechnet."
Either way, the revelations come at a time when continued market pressure appears to be applying the blowtorch to second-tier distributors, and serves as a strong example of how important a clear channel strategy is during tough times.