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Market Buzz National

Seagate, eSys fiasco: A blessing in disguise?

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DQW Bureau
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Zia Askari New Delhi, Nov 9

The six-year old global distribution tie-up between Seagate and
eSys has come to an abrupt end. Potentially, this development has got all the
ingredients for becoming a blessing in disguise for competitors of Seagate. The
question is, are the competitors capable of cashing in on this?

With US-based hard-disk drive major-Seagate Technologies
moving ahead to terminate its global distribution alliance with eSys
Technologies, the Indian IT channel is feeling that this development might help
its competitors gain marketshare in the Indian region. However, when contacted,
Seagate India's official spokesperson refused to comment on this issue.

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"Today, it is all about how a vendor drills down to
different markets and addresses the question of depth in distribution. Now
Seagate will have to make sure that its channel is not 'disturbed' by this
development. Because if the channel is disturbed then the company might loose
marketshare to other hard disk vendors like Western Digital or Samsung in the
Indian region," explained, VK Bhandari, CEO, Kolkata-based Supertron
Electronics.

eSys
Clarifies

According to an official statement
from eSys, the company has been informed by Seagate that it has terminated
the distribution agreement between it and eSys.

The statement further said that
during the current quarter, Seagate had requested an intrusive audit of
eSys' documents. eSys has declined access to a wide-ranging series of
requests, citing in particular its commitment to the confidentiality of
data relating to its customers and other vendors.

There have been protracted
negotiations starting October 2, 2006 during which time Seagate repeatedly
refused to provide shipments of their products as required under the
agreements. Despite this, and as a sign of good faith, eSys continued to
pay Seagate for invoices raised, bringing down outstandings from $103 to
$50 million, a fact acknowledged by Seagate as well. eSys has a long
history of meeting its commercial liabilities in full, and intends to
continue this record.

eSys strongly refutes any allegations
of irregularities in its compliance of the agreements. Over the last six
years, eSys has been supportive of Seagate's and Maxtor's strategies,
even at some cost to itself and its shareholders. Unfortunately, the
intrusive nature of the audit would not be justifiable to our worldwide
business partners under normal business practices.

eSys is committed to continuing its robust growth
in the field of technology distribution, and looks forward to an amicable
solution to the current issue, which will benefit the channel. The Indian
entity, eSys Information Technologies Ltd, however remains unaffected by
the recent development, as the Seagate business was not a part of eSys
India product portfolio.

Speaking about the impact of this development on Indian IT
channel, Manoj Gupta, CEO, Delhi-based Fortune Marketing said that there would
not be an immediate impact on the channel, however Seagate will align itself
according to the interest of channel so that the gaps are filed quickly.

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"As far as Seagate is concerned, Ingram and Redington are
already there. eSys was billing in dollars from Singapore while the other two
distributors billed in rupees. Now Seagate will have to see how effectively the
company can fill the gap within the Indian region," he added. Bhandari from
Supertron went on to say that Seagate would soon have to identify and appoint a
new distributor who can quickly mould itself according to the market dynamics
and start funneling the existing channel with Seagate's product range.
"They have to do this soon in order to involve the current channel in a way
that is comfortable with them," he added.

While it may take sometime for Seagate to identify and put in
place a distribution partner, its break-up with eSys might turn out to be a
blessing in disguise for other hard disk vendors to better establish themselves
in the Indian market.

As per sources close to eSys India, the company will try to
promote other brands like Western Digital or Samsung in the Indian region.
"We have been

selling Seagate for the past six years now and eSys has got a good depth in the
Indian channel. So in the current business dynamics we will be selling brands
like Western Digital and Samsung for the Indian channel," added a source
from eSys on condition of anonymity.

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With Seagate breaking its global partnership, as a distribution
house majorly focusing towards hard disks, eSys will soon have to devise new
ways to fill up the gaps being created by this development in order to remain
competitive.

Experts close to the industry feel that till now, eSys was
relying too much on Seagate for revenue. "Up till now, a big portion of
eSys revenue was coming from Seagate. With this agreement coming to an end, the
company will now really have to pull up its socks and think about other segments
and products in order to remain competitive," added a source on condition
of anonymity.

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