Apple has scrapped its local upgrades business, citing competitive pricing available from its configure-to-order (CTO) business. But one of its former employees has moved to fill the void.
In a confidential memo to channel partners, Apple Australia channel manager, Kevin McElduff, explained why the vendor would no longer offer Apple authorised third-party memory and hard drives.
"We have revised our strategy for the 2005 financial year in regard to the upgrades business and have determined that it no longer makes sense to run this business in parallel to the CTO offerings on Apple Store," McEldruff said.
But John Khoo, formerly the vendor's third-party business manager and now managing director of MacSense, has identified the closure as an opportunity for his business.
"These last two years things have been tough as Apple has been losing market share so I have had to switch from high-volume, low-margin products like hard drives and memory, to high-margin, low-volume products like RAID systems and network attached storage," Khoo said. "With Apple dropping the ball I'm now able to get back into the memory business."
According to Khoo, MacSense had managed to pick up where Apple left off, sourcing its memory from the same supplier as Apple.
"The good news for the channel is that MacSense is now selling the same product but cheaper than Apple was able to," he said. "The only thing I cannot give them is the Apple logo on the memory stick."
Khoo estimated Apple's annual memory business is worth $7 million, but he is under no illusions about being able to pick up the whole of Apple's business.
However, he also maintained that Apple's own CTO business would not be able to totally meet market demand.
"Just because Apple no longer offers the channel memory or hard drives, it doesn't mean resellers will order everything through CTO," he said. "They will often build the lowest configuration themselves to make the highest margin."
With the market now exclusively run by third-party suppliers, this phenomenon could lead to problems down the line, Khoo said.
"In the last four months there has been a higher than usual failure rate as Apple's newer machines have a power sluicing feature which makes the processor go to sleep, then wake up again," he said.
"If the memory can't respond fast enough when the processor tells it to wake up, then it says the memory is faulty."
With lower quality memory having slower response times, according to Khoo, the temptation to make easy margin on cheap components could cost the channel later on.
"When Apple supplied the channel, at least you knew they put the good stuff in rather than low quality third-party components which made the Apple machine look bad," he said. "Now, with MacSense sourcing from the same supplier, they may not make as much money as if they had bought it already configured, but at least they can put quality stuff into the box."
Apple Centre Taylor Square director, Ben Morgan, said he was not surprised to hear that Apple had decided to shut its local upgrades business.
Most resellers, he claimed, had been buying third-party upgrades and would continue to do so.
"We make more money from the third-party suppliers," Morgan said. "They are the ones who support the channel so most people prefer to buy through them anyway. Apple's products were too expensive."