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SCMP Reporter

Stung by a slowdown in demand, Sun Microsystems is scrambling to clear a build-up of products at Hong Kong outlets.

The inventory clean-out involves 30 Sun resellers, including market heavyweights Jardine OneSolution and Automated Systems (Hong Kong), which are weighed down by more than a month's inventory of Sun server computers.

The clear-out push may result in a delay of new product releases for Sun, industry observers said.

Paul Li, Sun's marketing director for Greater China, said the slowdown in Hong Kong orders affected all leading server vendors which were being aggressive in pushing products.

To remain competitive, Sun aimed to lower inventory levels of distributors to less than 30 days on average, Mr Li said.

'We are confident of clearing all this inventory within the next six months, as we closely monitor the situation with local partners,' he said. The company needed to clean up excess stock quickly or 'we will be in trouble'.

The Palo Alto, California-based Sun's inventory woes in Hong Kong reflect a worldwide fall in demand for its hardware, software and services because of corporate spending cuts in the recent economic downturn.

Last week, the company reported that projected fourth-quarter revenue to June 30 was in the US$3.8 billion to US$4 billion range, slightly down from the US$4.09 billion posted in the third quarter.

Mr Li did not specify the number of products held in storage by Sun's SAR distributors, but said it consisted of entry-level Unix servers, which are equipped with either one or two Risc (reduced instruction set computing) processors.

'We have no inventory issues in Hong Kong as regard to our higher-end servers,' he said. 'These are being built and sold per project.'

Research firm International Data Corp (IDC) divides the server computer market into three categories - high-end servers priced at more than US$1 million, mid-range server costing between US$100,000 and US$1 million, and entry-level server costing less than US$100,000.

Entry-level servers include those running on Intel processors and those on Risc chips from vendors such as Sun, IBM, Hewlett-Packard and Compaq Computer.

Sun has been a market leader in sales of Unix-based servers.

Alex Chan, chief executive at systems integrator Unitech Networks, said that the inventory backlog in server systems and networking equipment would mean more than lower margins for vendors.

'This may also lead to a slowdown in new product introductions because everybody wants to get rid of the inventory problem first,' he said.

Joe Sweeney, research director at Gartner Asia-Pacific, said Sun must maintain the price levels on its popular product lines while it tries to move excess inventory.

Whatever inventory remains in Hong Kong over the next few months, Sun expects to move forward with new product releases.

'We can manage new product introductions even as we clear up our inventory,' Mr Li said. 'Because of the slow demand, we must carefully balance these things.

'Our competitors will eat us alive if we don't come out with new products, as scheduled.'

SAR distributors of networking equipment and server systems also said the inventory situation in Hong Kong was manageable, compared with problems faced by large markets such as North America.

'The amount of inventory we have here was based on local consumption levels,' said Steve Lo, chief executive at Jardine OneSolution.

According to global figures released last month by research firm Gartner's Dataquest unit, Sun trailed Compaq, Dell Computer, IBM and HP in the number of servers sold in the first quarter of this year.

Despite the failure of some dot-com customers, Sun was able to keep pace with the market with a 7 per cent market share, Dataquest analysts said.

Sun is focused on Risc processor-based servers, while its rivals sell servers that run on either Risc or Intel chips.

Mr Li acknowledged that it was a buyer's market for servers in Hong Kong and that Sun was pushing products through promotional discounts and leasing deals.

'The reduced prices on products are all part of existing promotions that vendors are doing,' said Charles Yan, director of enterprise computing at Compaq Hong Kong.



Corporate spending cuts leave resellers with glut of servers