25th > August > 1998 Archive

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The R Word

What do you call an industry losing billions of dollars a year that keeps making more of the same products to worsen its debts? Stupid? Well, yes, we could certainly say that about the DRAM business -- but how about another term, unregulated. A report in this week’s Electronics Weekly here in the UK, has stated that LG Semicon and Hyundai’s combined debts total more than $11.4bn, a simply staggering sum. Debts for other manufacturers may not be quite so enormous, but none the less are big. In the interests of fairness I should state that Vanguard will lose millions too, this year. The political and human costs of these losses are mounting. Already we have seen that the British Government has been caught between publicly trying to support Korea and private anger over the closure of the Siemens DRAM plant (blamed on the Koreans by the boss of Siemens) in Tyneside. Human costs? Try insecurity, stress, stress related illness, redundancy, pay cuts and worse. This year more than 20 people I personally know have left the DRAM industry for one reason or another. We suspect more will still leave. Just imagine what would happen if the price of a new Ford Saloon fell from £15,000 (the average UK price) to £1,500 in 18 months. Or the value of the FTSE100 fell by the same percentage. Can you imagine Ford building more cars? Or the Stock Exchange allowing more stock to keep being sold? No, I cannot imagine this either. But why? The reason is the R word. Regulation. Most other, older industries have at some time or another faced a crisis like the one affecting the DRAM business. When natural market forces have not been able to take effect (or not allowed to happen) it has been because industry leaders have sought or had imposed upon them different forms of regulation, formal or otherwise. At the end of July, we saw DRAM pricing rise strongly. It stayed up for three weeks. It is now falling and although it is unlikely to return to its old low, the increases are unlikely to return except for some proprietary devices. There is one simple reason for this. There just is not enough demand to support all of the DRAM still being manufactured. The increase was a strong and concerted effort by the manufacturers, working together, to see price hikes take place. But it was doomed to failure when the consumption figures did not exist to take the product available. Never mind that it was Korean manufactured product that was first offered at a discount in Hong Kong – the fall was inevitable. The time has now come when if the world’s DRAM producers cannot regulate themselves they must become regulated – or leave the industry. For the sake of the millions of people whose lives depend on this industry, and for the sake of the future of the industry (which needs profits to fund research and development) we now need regulation. The world does not need a DRAM mountain, no matter how keen some manufacturers are to produce one. ® Roy Taylor is joint managing director of Vanguard
The Register breaking news

Intel delays PII/mobile 300MHz to avoid product swamp

Intel confirmed that it delayed releasing its Pentium II/mobile processor running at 300MHz so that it would not be swamped by the announcements on its PII/450MHz and Mendocino Celeron processors. At the same time, more details have emerged of the price cuts it will make in mid-September which will dictate the way the Christmas market appears. A representative from Intel UK confirmed that the PII/mobile will now be released in September, although he was unwilling to give price details. Nor would he confirm re-vamped Pentium II prices. According to sources, the PII/333MHz will now slump in price, making this an unattractive processor for first time buyers or people looking for additional performance. The so-called "sweet spot" is the latest 450MHz chip released yesterday, although this too is likely to have a reasonably short shelf life. However, it started off at around $80 less than the 400MHz... Intel's mobile road map will change next year with the introduction of technology intended to bridge the gap between the desktop and the mobile market. But the entire industry, never mind first time buyers and end users, is still waiting for Intel to come clean on its product roadmap. In 1998 it has cut prices and introduced new lines. So far, it has failed to lay out its market stall so that people can see clearly whether PCs they are buying will be out of date within months. ® CNet is not an investor in The Register although Intel, which is not an investor in The Reg is. Senor Mendocino is no relation to Madame Celeron, but Carmel Cascades is
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Seagate reshuffles R&D units

Seagate is reorganising its research and development units for the second time in a week, in an effort to bring to market new technology more quickly. The disk drive vendor is splashing out $30 million on a new disk-drive research centre based in research magnetic and optical materials, processes, and technologies. Based in Pittsburgh, the new centre will employ 40 staff, increasing numbers to 100 by 2001. Last week, Seagate funnelled all development and testing of optical storage technologies into its Quinta subsidiary. At the same time it transferred Quinta's non-optical storagre R&D responsibiliites into other divisions. When technologies are proven reliable, they are bumped up to Seagate's Advanced Concepts Laboratories and to design centres, for product development and delivery. By streamlining its R&D units, Seagate hopes to reduce the time it takes to transform technology into product. This is intended to help the company conserve margin at a time of excess industry capacity and plunging hard disk drive prices. ®
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User 2 seeks refurb franchisees

The failure of franchising in PC retail is being challenged by User 2 Computers, which has launched an ambitious programme to sign up around a dozen franchisees. The retailer based in the North East of England, claims that - for the £110,000 cost of a franchise - it can provide franchisees with a fully fitted shop and stock to trade. Allan Mitchell, franchise development manager at User 2 Computers - a retailer with a turnover of around £ 1million - said that it offered technical training to franchisee staff, and group purchasing which meant low cost PCs. User 2 Computers builds its own PC and also sells re-conditioned units. Franchisee owners have to build PCs from approved component suppliers in order to ensure consistency said Mitchell. "The terms of the franchise mean that certain standards of build must be met," he said. User 2 Computers is combining the franchise scheme with its own expansion programme - funded by 3i - to build its name and open a dozen new stores, from its base in the North East. Mitchell said that the value of the franchisee would be increased as the User 2 Computers chain expanded. The history of franchises in the PC retail industry is not a happy one, however. Few have attempted franchising and even fewer succeeded. The reason according to Brian Burke at Dun & Bradstreet's computer market intelligence unit is that the valuable brands in the PC industry belong to the PC manufacturers not the resellers. "There is little value in the retailer's name," said Burke. "Customers will not have heard of most of them. What they will have heard of are vendors names - like Compaq and IBM - which will be of little help to the franchisee." ®
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Ikon truffles for more UK acquisitions

US copier and printing giant Ikon Office Solutions - which last week forked out for £45 million dealer Rockliff - is on the look-out for more UK dealers to buy, as it moves into networking services. Ikon has already bought three UK dealers in the last year, and said that it wants to buy more across the country. The majority of its acquisitions have previously been in the US. UK vice presidentDavid MIlls said that Ikon, which has a $5 billion worldwide turnover, was looking to acquire companies that offered IT solution that could be integrated with its copier business. He said that copiers were increasingly becoming an integral part of computer networks, rather than merely an adjunct. Runcorn-based Rockliff specializes in network design and installation, hardware and software procurement and cabling. Rockliff MD Michael Taylor said that acquisition by Ikon would allow Rockliff to grow throughput the UK. Ikon had previously bought Manchester-based Redbox and DTL. ®
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NetStore gets £3 million from 3i and two clearing banks

3i has brokered a funding deal for the NetStore Group in which it, NatWest and Barclays Ventures will fund the services company to the tune of £3 million. This is the second round of funding for NetStore. In the first round, 3i financed the deal. Daniel Morgan, a senior consultant at 3I, said: "As an investor, you need to listen to people's ideas and then shape them." NetStore has a large deal with networking company Cisco. Whenever a Cisco employee logs on to the corporate network in Europe, an agent, which uses the TCP/IP protocol, takes stock of the software on employees' notebooks, backs up their files and performs asset checks. According to Sean O'Reilly, managing director of startup NetStore, he is already in discussion with a number of resellers about the project. A source at the company said Computacenter was interested in licensing it to its corporate clients. The additional £3 million investment means the two banks and 3i now own 26 per cent of the equity in the company. Its valuation is now £11 million and it is expected to either float on the stock exchange or be bought within the next six months. The Cisco representative would not say whether his company was interested in taking it over. ® NetStore
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CD-RW is the new floppy

CD-RW has the potential to become the next universal data-interchange medium for computers, a position the 1.44MB 3.5-inch floppy disk has held since the late 1980, Hewlett-Packard says. The first CD technology to be used with computers was CD-ROM, a read-only technology. In the early 1990s, CD-Recordable (CD-R) drives became available and data could be stored permanently on a disk and be accessed by any CD-ROM drive. With the introduction of CD-RW, which has more than 400 times the capacity of a floppy, and can be over written up to 1,000 times, users can now store and erase data on CDs for playback on MultiRead-compatible CD-ROM drives, CD-R drives and CD-RW drives. As CD media is becoming more pervasive, users can create and share information with more than 200 million CD-ROM users and 600 million CD audio users worldwide. According to HP, storage market analysts regard CD technology as a ubiquitous tool for today's computing applications. Demand for CD products is growing at an impressive rate and IDC projects that about 84 million CD-ROM drives will be sold in 1998. This is up from about 72.6 million in 1997, of which 2.5 million were CD-RW and CD-R drives. A spokesperson for Hewlett-Packard said that the value of the disks would become more apparent as applications demanded more and more storage space, but said that the price difference would prohibit direct competition for a while. Those who do not need the kind of capacity offered by CDs would probably stick with traditional floppies.®
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Networking equipment market shows healthy growth

An increased reliance in business on networking capabilities has boosted the remote access concentrators market, but failed to support sales of remote access servers, according to a report from Dataquest. Meanwhile Dell'Oro, another research group, reports that sales of shared hubs and LAN switches rose by eight per cent to $2.5 billion in Q2 this year. Dataquest projects healthy growth for the remote access concentrator market as companies come to rely on the Internet to increase productivity. Revenue in the sector totalled $494.1 million, up 6.8 percent from the second quarter of 1997. Cisco is doing particularly well, moving to the market leading position, as new business it attracts tends to stay with the company because of its range of products. Ritu Sani, an analyst at Dataquest, says the average net user in becoming increasingly sophisticated and is demanding more from the network. "ISPs are anticipating these changes and are beefing up their networks with equipment that can offer the desired levels of service and reliability, " she said. The report from Dell'Oro points to delayed buying as a major factor in the success of the LAN and shared hubs market in the second quarter. Customers were waiting for the lower prices on new products that were to be announced early in Q2, it said. The remote access server market did not fare so well, dropping nearly 38 per cent in the quarter. Bay Networks was the only top tier vendor to post positive results, with a 28 per cent increase on the first quarter of the year.®
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Hercules unchained

ELSA, a PC peripherals developer, has bought Hercules, the one-time pacesetter in the graphics card market, for $8.5 million in cash. The deal includes the transfer of all assets, including brand rights, and some of Hercules' liabilities to ELSA. Hercules generated revenue of $30 million in 1997. Hercules was one of the first players in the graphics card market, and set the industry standard in the early eighties. Bob Raikes, MD of Meko, the publisher of Display Monitor, commented: "It was The Original. It was making graphics cards back when no-one apart from IBM had even thought of them. It struggled for a while, but it has been making a comeback over the last couple of years. Hercules has built up a strong European presence, particularly in Germany." ELSA expects that the increase in development capacity will enable it to market innovative products even faster. The companies will now work from the same HQ in the US, in an effort to cut costs in the short term. The acquisition gives ELSA a foothold in Europe and access to a consumer market, covered by Hercules, but until now largely untapped by ELSA. According to Theo Beisch, CEO of ELSA, Hercules provides significant development know-how, excellent contacts to the internationally established chip manufacturers and outstanding sales channels in the US and Europe. He said the takeover was the start of an aggressive programme of expansion. "ELSA's first acquisition is a major strategic step on our way to become a global player. The financial strength of ELSA combined with Hercules' worldwide image in the consumer market allows us to play a dominant role in the PC graphic cards sector even faster than expected."®
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Bluck off

UK has lost its sales director, Darrell Bluck, within two weeks of his appointment. The UK arm of the Taiwanese PC giant is said by sources to be awash with discontented staff, with Bluck just one of a growing number of departures. One source within the Acer UK channel said Bluck, who had been channel sales manager at Acer, was unhappy with events leading up to his promotion to the post of sales director. “Bluck heard that he was being passed over and that someone from inside Acer with a marketing background was getting the job. When he complained that the sales director ought to be someone with a strong sales pedigree, he was promoted to keep him happy,” the source said. Anita Bowles, Acer UK marketing director, was not available for comment. The source said that Bluck’s motive for leaving so suddenly was unclear but that some eight or nine other Acer staff were rumoured to have left the High Wycombe-based company Sources within the channel told The Register that within the last two weeks. A representative of Acer UK confirmed Bluck’s departure but gave no further details. “Well, he’s gone,” she said. “He wasn’t in the job very long at all.” Bluck was planning to establish a distribution company, but he could not be contacted to confirm this. ®