Cartel blamed for plight of IT companies

DUBAI — A leading IT wholesaler, who decamped from Dubai last week amid heavy debts, blamed the alleged high-handedness and monopolistic practices of "a caucus" of four major Intel distributors for the collapse of several computer firms that pushed the sector to one of its gravest crises involving more than Dh200 million in debts.

By Isaac John (Chief Business Reporter)

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Published: Thu 8 Jun 2006, 9:40 AM

Last updated: Sat 4 Apr 2015, 3:23 PM

Hamid Kutty Shajahan, owner of the debt-ridden Micron Computers, lashed out against the "Intel distributor cartel" — Logicom, Mindware, Techdata and Empa — for what he termed as "attempted and associated efforts to control upcoming companies" in order to monopolise the market.

Speaking to Khaleej Times from India, Shajahan alleged that Micron, a premium Intel provider, was "caught in a trap set by the four-member cartel." Intel distributors' practice of dumping products by giving unwanted exposure to mid-sized companies has led to the downfall of at least five wholesalers over the past one year. They include, apart from the major three failures that happened in the past one month, Direct Computer Systems and E-machine, both Intel premium providers, accounting for more than Dh100 million in debts.

"Channels were always suffering whereas distributors were making huge profits by pressurising channels," he said.

"It is their (distributors) practice to pamper the channel partners by providing indiscriminate exposure and then abruptly slashing the credit line and supply in the event of some traders running away from the market," said Sojan Joseph, an IT dealer.

Mahendra Kumar, Financial Controller of Logicom, said he would not comment on such allegations at this point. Techdata sources also declined to react.

In a statement entitled "Planned attempt to kill upcoming IT companies," Shajahan defended his 15-year track record of doing business without any instance of non-payment until he became a victim of the debt trap set up by the distributors.

"We were given good credit line by all vendors. When all of a sudden, Intel distributors stopped our credit line by giving a reason that some other company had run away, our cash flow was affected," he said. "Despite this, we have cleared all the cheques till the date we closed down even without getting supplies from distributors for more than seven days."

"The local IT market, controlled by the cartel, is pressurising small and medium companies to push their products to an extent exceeding the market requirements. This will force us to sell those products even at a loss as we have to clear their payments in 30 days. We have been under pressure to move big quantities and ultimately this loss-making process has led to the collapse of several players," he said citing the names of five companies that went out of business.

Shajahan said despite several requests to distributors to reopen the credit line on the promise that the exposure would be reduced in three to four months, they did not help the troubled firms. "Had they helped us in such a critical situation, we would not have such a plight. So please try to understand the scenario and help us to come back and settle as we have good stock and good receivables," he pleaded, stating that his debt to asset ratio is 1:1. Stressing that he has no intention to cheat, Shajahan, who is believed to have piled up debts in the range of scores of millions, said: "We have not taken any money from business and flown. It is only when vendors started threatening us with legal action, we were forced to exit the country. However, we are keeping in touch with all our creditors and banks with the hope of settling the problem."

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