Category: Opinions

No cash cow from dog chips – it’s barking mad

ChihuahuaCompanies hoping to make a few bucks out of new dog chipping legislation could end up disappointed with an analyst pointing out that that there’s not a lot of margins in this industry.

Malcolm Penn, an analyst at Future Horizons, has also advised chip companies looking to be favoured by the government to put away those expensive bottles of whisky, with favouritism illegal in this country.

The comments come as an anticipated announcement by the government is expected to order that all dogs are microchipped by 2016.

It is thought the moves will help owners reunite with lost or stolen pets, relieving the burden placed on local authorities and animal charities by stray dogs. It will also mean it will be easier to track the owners of dangerous dogs.

The chips will contain an electronic record of their owners’ name and addresses, as well as a unique identity number, which will be stored on a database in case the details are needed.

According to the Dogs Trust, more than four million dogs and cats in the UK have been fitted, with up to 8,000 new registrations every week.

However, prices on this process are varied. The Dogs Trust suggests that owners are looking at around £20-£30 to chip their dogs, while others claim that the cost could be as little as £5.

Malcom Penn pointed out that the cost would be far lower.

“These chips are not so complex, maybe five cents a pop for the IC manufacturer, and pet quantities are not that great – around 8 million dogs and cats – with a ‘renewal rate’ of say 1 million per year, assuming an average eight years life . So, US$5 million per year ongoing plus the one off surge.”

He also pointed out that although Infineon is the world market leader here, the UK  is unlikely to have a favoured supplier, as it’s illegal under EU regulations.

Channel faces legal pitfalls after Oracle ruling

courtThe final appeal is out and Oracle has lost its appeal against a Californian judge’s ruling that it will have to keep porting its software to Hewlett-Packard’s Itanium-based servers.

But as the cleaners clean the blood off the court room walls, it is clear that the case will have some impact on the way suppliers do business.

The case centred on the so-called Hurd Agreement, which HP and Oracle negotiated after Mark Hurd left the company and joined Oracle. Oracle felt that the agreement was a statement that the two companies would work together as they did before their spat. Oracle co-President Safra Catz claimed that such a statement was a non-binding “public hug”.

The judge thought that public hugs should be considered legally binding, depending on who was doing the hugging. He pointed out you can’t write down a phrase like “Oracle will continue to offer its product suite on HP platforms … in a manner consistent with that partnership as it existed prior to Oracle’s hiring of Hurd” and hope that no one would take you literally.

“The sentence can only be reasonably interpreted as requiring Oracle to continue offering its product suite on HP’s Itanium platforms,” Kleinberg wrote.

It went without saying Oracle appealed, but other judges also nodded sagely and said that it did not matter what Ellison thought he had signed, the agreement was there in black and white.
While the situation is extraordinary, it could herald a new era of partner agreements.

The case effectively said that any agreement has to be written down carefully and mulled over by the legal team before it is signed. It also says that anything put in writing has to be looked at as if it was chiseled into Egyptian granite for all time.

While this might seem obvious, it clearly was not in Oracle’s mind it has some of the most expensive, er, best, lawyers in the world.

Already analysts are muttering that you will never see another “public hug” deal like this again. Every agreement between suppliers will have a start date and an end date.

This is one of the reason why the channel should be dusting off their legal contracts with their suppliers post haste. Many of them will find that they have signed vague expressions of love and devotion which could get them in hot water.

Some of these contracts are like a pre-nuptial agreement, which are signed when the partners are in love and only reviewed when they are arguing custody over the CD collection.

Software deals in particular can be problematic, which are particularly ripe for a major legal row when something goes wrong for a mutual customer.

Fortunately a lot of lawyers have written in clauses into such for the contracts to be reviewed, or renewed. The problem is that if they are not renegotiated it is possible, as HP did, to stand up and demand it be taken literally.

The Itanium case also proved that trying to get out of a deal with bad grace might also backfire. Oracle really hates having to support Itanium, but if it assigned its worst developers to make sure the porting was stuffed, Ellison could be back in court facing a contempt charge.

Because the court has become involved, Oracle is painted into a corner and must be a dedicated follower of Itanium. Its ability to duck out of the plan is even more restricted than Intel or HP.

No company would ever want their partner to have that much power over their business decisions. So it is probably better to check out what those old contracts look like before you pick a fight with your channel partners.

Alvea offers SMBs, channel, managed network security

gardnerIt “makes no sense” for the channel and small businesses to ignore the security market, Alvea has said, speaking with ChannelEye.

Recent research from channel analyst house Canalys suggests that the security industry is growing 10 percent year-on-year. According to Alvea, however, it can be tough for small businesses to stay on top of the ever changing security landscape, especially in a difficult economic climate.

The comments come as it launches its Managed Network Security service in the UK and Ireland.

Managed Network Security, which is the latest addition to the company’s services portfolio, is designed to help small and medium businesses (SMBs)  protect their networks from security threats and will be sold through the firm’s channel partners.

Neil Gardner (pictured), professional services development and operations manager at Alvea Services, pointed out that although it is urgent for SMBs and channel players to keep up with current threats, it can cost serious money and time.

Gardner told ChannelEye the company can help channel partners keep up with these threats thanks to its relationship with distributor Computerlinks. Although the Alvea brand is an independent service, it is supported by technical expertise and infrastructure from Computerlinks.

“Computerlinks has been in this industry for over 20 years and has an office built around a range of engineers and techies who keep up with the day-to-day threats in the security market,” Gardner said.

“Therefore what we offer our partners can be better than our competitors. Either a fully managed service contracted to us or a managed support package run by the partner.

“We want to give our partners an a la carte package, where they can also mix and match services. If we look at the competitor landscape we at best match prices with our rivals. However we offer a better service,” he said.

The new service includes both a firewall and a Virtual Private Network (VPN) delivered on a choice of hardware security appliances.

According to the company, the range of appliances available within the Managed Network Security service ensures that resellers can select the product that is best suited to their customer’s network requirements. They can also offer consultancy skills to customers to ensure the provision of the right level of protection and investment.

As businesses grow, resellers have the scope to add new service modules.

Alvea said this gives them the chance to remain in constant contact with customers, hold regular service reviews and foster a long-term relationships that may lead to additional sales opportunities.

Resellers can also offer the option of a managed security service to their customer bases without incurring the high costs of becoming a managed service provider themselves.

Extended warranties are an untapped gold mine

Alaska - Gold MineIn the troubled economic times it is starting to look like resellers are turning to extended warranties as a good way to boost cash.

Buried in Dell’s quarterly results was a surprise statistic which indicated that the importance of the box shifter’s extended warranty program continues to rise.

A few years ago it was twice as large as the product warranty operation, now it’s four times larger and it is accounting for a rising percentage of the company’s total revenue.

Dell has traditionally been a big fan of the extended warranty programme and the idea was nicked by Apple, which has now become the world’s largest peddler of extended warranties.

In its heyday, Dell could control the sales channel from beginning to end through its extended warranty policy, kicking HP which usually sold its computers through retailers. These retailers had their own brands of extended warranty to sell and ended up harming HP’s margins.

The money involved was huge, according to Warranty Week. It estimated that Dell had sold $31.1 billion worth of extended warranties since February 2004, as opposed to the $17.5 billion Apple has sold since October 2003.

Apple saw its extended warranty revenue rocket upwards since the launch of the iPhone in late 2007 and probably matches Dell by now.

All this starts to make it clear why Apple has been so keen to avoid EU laws on warranty. Apple has its AppleCare programme, which is an extended warranty that kicks in after a customer owns a product for longer than a year. EU law says that the warranty for electronic goods should be two years, which makes AppleCare less attractive.

Apple has been in hot water in Italy, and now in Holland, for selling its AppleCare packages without doing enough to tell customers that in most cases they do not need it.

The way resellers can get around all this is to offer extended warranty packages which are more generous than the EU laws. But for this to work, the warranty would still have to expire before the parts on the electronic items start to fall to bits.

Last year, Dell reported $4.3 billion in extended warranty sales revenue, and $1.025 billion in product warranty accruals. Apple sold $5.3 billion worth of AppleCare contracts. It was estimated that the cost of actually fixing Apple products was $1.786 billion in claims paid last year.

This means that even with the large volume of products and the lowering of price of components, the profits that the two biggest warranty peddlers have are extremely high.

Hard drive prices slowly returning to pre-flood levels

hddcloseupThe hard drive industry was hit hard by heavy flooding in Thailand back in 2011. Several plants, providing vital components for Seagate and Western Digital, temporarily went off line following the disaster. The shortage caused a massive surge in hard drive prices and its effects are still being felt.

Keen to provide a bit of perspective, Xbit Labs compiled an interesting chart of hard drive average selling prices, based on data from Seagate’s and Western Digital’s SEC filings over the last four years. Pre-flood average selling prices (ASPs) were between $45 and $55, but they soared to the $70 mark in Q4 2011. The recovery was painfully slow and although some rather optimistic analysts claimed the market would stabilize by mid-2012, we are still feeling the muddy aftertaste of Thai flood water.

According to the latest figures, average selling prices decreased to $62 – $63 per unit and they are still considerably higher than pre-flood prices. Prices are currently at 2008 levels, which means they are still too high for comfort. Of course, the effects of the global economic downturn and recent PC slump were not factored into 2008 pricing and ASPs should be significantly lower today, even after they are adjusted for inflation.
This is bad for consumers and system integrators alike, as they have to adjust their own margins to compensate for the higher prices.  What’s more, hard drive makers are probably not too keen to reduce their ASPs, as further cuts would negatively impact their margins while they are still reeling from flood-related losses. Western Digital CEO Stephen Milligan confirmed the company has more capacity, but it is throttling it to what it sees as demand, which is a polite way of saying WD is trying to keep prices artificially high.

It is even worse for end consumers looking to upgrade their PCs or get some cheap portable storage. Back in mid-2011, per-terabyte retail prices were at their lowest point, about €25 in European markets and a 2TB 3.5-inch drive cost roughly €50. By November 2011, per-terabyte prices hit €35 to €38 and they went on to peak at €50 to €55 by April 2012. Retail prices today are still significantly higher than in 2011 and they are in the €38 to €40 range across Europe.

Xbit also concluded that ASPs peaked in Q4 2011. In the meantime, SSD prices continued to tumble, but SSDs are still too costly to completely replace traditional hard drives. However, SSD shipments are expected to double in 2013, as they are the preferred storage option for Ultrabooks.

Hybrid drives are also entering the fray and they can be found in quite a few budget ultrathin notebooks, although their days in proper Ultrabooks are numbered. So far Seagate is the only hard drive maker to offer 2.5-inch hybrid drives in retail, but Western Digital is also entering the market and it showed off its first consumer friendly hybrid drives at CES.

Traditional hard drives are not going anywhere yet and it is evident that WD and Seagate have enough room to maintain a huge price advantage over SSDs, as they are artificially inflating prices. They can’t bridge the performance and power consumption gap, but by offering hybrid drives they can bring the best of both worlds to value-minded consumers.

 

Apple’s down but it’s far from out

Apple, iPadConsumer behemoth Apple reported its first quarter financial results yesterday and while it posted revenues of $54.5 billion and a net profit of $13.1 billion, compared to revenues of $46.3 billion and profits of $13.1 billion in the same financial quarter last year, profits were flat.

Gross margin fell to 38.6 percent compared to 44.7 percent in the same quarter last year. Apple is forecasting gross margins between 37.5 percent and 38.5 percent for its second quarter, with estimated revenues between $41 billion and $43 billion.

So, what’s the problem? CEO Tim Cook said that supply problems were a matter to be concerned about, despite media reports.  And Apple has got a stash of cash in its corporate coffers – not far short of $137 billion in both liquid ashes and in cash.  That gives it a pot of gold that would let it buy other companies to make a splash in new or other developing markets.

A bigger problem is its existing slew of products, including the wildly successful iPad and the solidly popular iPhone.  It does face a challenge on the tablet front – particularly so from Google and Amazon devices.  Microsoft Windows 8 using Intel chips may not be so much of a challenge.  Intel cannot necessarily lower the price of its microprocessors, given its business model and Microsoft appears to believe that tablet devices running the touch version of Windows 8 should command the same prices as Apple iPads, or be even more expensive.

Apple’s share price (AAPL: Nasdaq), stood at $460.15 at press time.

HMV pooch put down, Blockbuster busted

nippergonerHMV’s pooch has been put down. Staring into a rifle rather than a gramophone, Nipper’s one of the latest goners in the struggling high street. The question is just why exactly he and the chain have taken this long to croak.

His Master’s Voice had been shouting – with a sickly sore throat – for quite some time about how it is still relevant. HMV tried to launch a digital on-demand service, it committed more of its shelf space to electronics, and attempted to lift itself out of an inevitable quagmire. All the nostalgia is fair enough considering the brand’s longstanding legacy (though this Telegraph article makes a compelling case otherwise) – what doesn’t make sense is the illogical idea that Britain’s high street is integral to its national character or even its larger economy. Britain went through the luddite movement once already. Haven’t we learned our lesson? Once the technology is out there, you can’t turn back the clock, and trying to do so is understandable, but stupid.

Shopping online makes sense. This is why it is so successful. Given the choice between getting on a bus, standing in a queue, paying more, and with a limited selection – compared to one click ordering in under a minute, cheap, for exactly what you want or need – is it any surprise the consumer has largely chosen the web? It is possible that a retailer will figure out a hybrid model at some point in the future, and bargain or pound shops are unlikely to have many problems in a recession, but for the sort of commodities that don’t need to be tried on, the internet is a better option.

Any sympathies in wake of the bust must be directed toward the thousands of staff that lost their jobs because management refused to innovate in an age where taking risks and doing so is the  only way to succeed. Consistently playing catch-up, and thoroughly outpaced, it is a miracle HMV managed to hold on as long as it did. As for the unfortunate staff: let the demise of HMV, and all the others, work as a warning that in a permanently connected society it’s now nearly impossible to rest on your laurels and run a successful operation. HMV, of course, is only one of the most recent. Jessops (which previously shared the same chief executive as HMV’s last) was another casualty, before it, Comet, and before that, more. It has just been announced that Blockbuster will go into administration – South Park aired an episode about the inevitability of this outcome in October 2012.

Britain’s high street hasn’t been about some vague and nostalgic notion of community for a long time. Its steady transformation from local merchants and butchers to identikit hubs of big brand shops, that look the same in every British suburb, was complete years ago.

Adam Smith described Britain as a nation of shopkeepers, and that – first published in 1776 – is still true today. But it is something that must change. The high street’s death rattle has only just begun. An economy committed to hiring people to sell products – let alone barely producing –  is bound to fail, and we can only expect more casualties to come.

According to some critics, the blame is solely in the hands of management. Speaking with ChannelEye, Luke Ireland, business strategy adviser and non-executive director, said: “It is no surprise that we see three more major retailers succumb to the power of the internet.

“Don’t blame tax avoidance or government policy blame the management for not embracing the internet.

“It’s not going away and unless you fundamentally build it into everything you do your business will fail. I feel for the staff but if you work for a retail business which ignores the internet I’d look for another job.”

 

HMV “fights losing battle” for quite a while

HMV_NewcastleIllegal downloads, competition from online stores and legal streaming services have all contributed to HMV fighting a losing battle.

The once popular music store, which was a haven for 90s teens buying their first singles and albums, has become the latest casualty on the high street, announcing earlier this week that it was to go into administration.

The company, which has around 250 stores nationwide, made the announcement claiming that like-for-like sales were down 10.2 percent for the half year to 27 October and the Christmas period had not helped push profits up.

Trevor Moore, the former Jessops boss who took over as HMV CEO in August, said in a statement that the company had held discussions with its banks over the weekend but failed to agree on new terms for its debt.

“The board regrets to announce that it has been unable to reach a position where it feels able to continue to trade outside of insolvency protection and in the circumstances therefore intends to file notice to appoint administrators to the company and certain of its subsidiaries with immediate effect,” he said.

Michael Perry, a retail analyst at Verdict, said the chain had been “fighting a losing battle for some time,” pointing out that it hadn’t been able to compete with the likes of Amazon on either price or range, while grocers had also been slowly claiming market share.

“Illegal downloading has also had a part to play, particularly over the last few years as consumers look to save money. To many, the monetary benefits of downloading outweigh the risk of being caught, resulting in online piracy continuing fairly unabated,” he told ChannelEye.

“The same can also be said for legal streaming services such as Spotify or Netflix, which have largely negated the need to purchase physical media for many consumers.”

And the public are also suffering. Not only are there around 4,500 jobs at risk, but customers are left with vouchers that they can’t use.

How Microsoft and Intel lost the plot

The TitanicWhile no-one could say that the writing is on the wall for giant tech companies Intel and Microsoft, there is a warning there but so far it’s just written in invisible ink.

As I write this, Intel’s share price (NASDAQ:INTC) stands at $21.93 and Microsoft’s (NYSE:MSFT) at $26.90.  They’ve ticked along in this way for many a long year now and the only way seems to be down.

Signs of bombers approaching have been on the radar for many a year now, and both companies seem to be like supertankers, which take an awfully long time to run round.  The Vole and the Zilla have got complacent and failed to take steps years ago to re-engineer their businesses.

You still have time to have a wee and wash your hands before a PC boots up and despite the undoubted process advances Intel has made over the years, people are fleeing the Win platform in their droves.

Both companies have failed to make inroads into the smartphone and tablet market, even though they whined on and on about convergence for many a year.  Handset manufacturers, by and large, do not want to be in the tender embrace of the two companies which essentially dictated what went in the PC industry.

And besides, their basic technology deeply sucks, for different reasons. Intel is forced, because of its huge capital investment commitments, to put a premium on its notebook microprocessors while it is safe to say that its much vaunted Atom range is just a total flop.

Microsoft’s software has always basically sucked anyway and it’s only by cunning marketing that it achieved its pre-eminence in this side of the business. I don’t think anyone, apart from Intel executives, have got smartphones powered by Intel Inside. Oddly enough, at an Intel Developer Forum years and years ago, when it still had its StrongARM stuff, me and a few other journos did ask why Intel just didn’t go and develop really low power devices based on the ARM chip and give people what they really wanted.

While Intel and Microsoft have been shilly-shallying and, essentially, living in the past, competition has crept up and overtaken them.

And so at some point this year, current CEO Paul Otellini is to depart from his captain’s cabin at Intel, to be replaced by who-knows-who to guide the ship into 2013 and beyond.

Right now, and as an Intel and Microsoft watcher for nigh on 30 years, I just can’t see how these particular conjurers are going to pull any rabbits out of their magic hats. Maybe they’ll specialise in producing cabbages from up their sleeves, instead.