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Editorial: Will Digiland pack its bags?

Editorial: Will Digiland pack its bags?

One-time British Prime Minister, Benjamin Disraeli, once said there are three types of lies: lies, damn lies and statistics. The flurry of financial reports that land in ARN inboxes are often filled with the 'little white' variety, presenting company performances in ways that accentuate the positives and sweep any negatives conveniently under the carpet.

But some results are just too stark for even the most talented of number crunchers and financial masseurs to put a positive spin on. These results are rarely sent to journalists but when a company is listed there is no place to hide. The financial results published by Digiland on the Singapore Exchange at the end of August are an excellent example of a report that even 'magic man' David Blaine would struggle to transform.

While group revenues fell by more than $US100 million across the region during the financial year, decreases were attributed mainly to its Australian operations. Sales at the local division fell by more than 60 per cent to just $US27.3 million, which is not too surprising given the list of major vendors that have terminated agreements with the distributor in the past 12 months - HP, Epson, Maxtor, Acer, Linksys, AMD and MSI among them. Furthermore, capital expenditure in its Australian operation was wiped out completely and its local assets shrank from $US25.45 million in FY03 to just $US3.58 million a year later.

While the erosion of gross margins due to the highly compet­itive nature of the PC, printer and hard drive markets was flagged in the report as one reason behind the poor results, the loss of its flagship distribution agreement with HP looks to have been the heaviest blow. It has been no secret to any of its competitors in the Australian market that Digiland has been going through some tough times and, as is often the case in the channel when a competitor is bleeding, rumours have been commonplace.

Digiland has maintained a business as usual stance throughout - despite the drastic fall in its number of local staff and vendor agencies - but this no longer sounds like anything other than damage limitation. While its reputation remains intact in other countries, its Australian name has now taken so many hits that it has become difficult to see how the downward spiral into oblivion could possibly be reversed.

The IT distribution game is difficult enough at the best of times. It is a fickle business and, as margins have been eroded in recent years, the old maxim of 'get big, get niche or get out' has never been so true.

It makes perfect sense that you either try to win a bigger slice of the shrinking pie or scale back operations to concentrate on niche strengths when the market is difficult.

Digiland chose to head down the 'get big' path. It is less than 18 months since its representatives told ARN it was looking to acquire Dicker Data or eXeed to help it achieve a goal of establishing itself as one of the top three distributors in the local market. These were lofty ambitions but neither deal was completed, HP et al moved on and in the not too distant future, it seems likely, so will Digiland.

Brian Corrigan is Editor of ARN. Reach him at brian_corrigan@idg.com.au


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