Five years ago: Direct sellers cash in on RAM price free-fall

The terrific second financial quarters turned in by Gateway 2000 and Dell underline the continuing nimbleness of direct sellers in the teeth of component price free-falls. Gateway was up 48 per cent in revenues for its Q2 while Dell jumped 40 per cent. Both firms said the ability to turn round stock as memory and other parts collapsed in price was key to their successes.

"It's really been difficult for channel players as they haven't been able to keep up with the falls in memory and other prices this year," said John Shepheard, UK marketing manager. "Component prices are changing significantly every two weeks. The channel people can't compete with that and the direct boys are reaping the rewards."

Dell marketing director Peter Hubbard agreed. "We really believe the direct model is the way to go," Hubbard said. "We are seeing component costs tumbling and we carry such low inventory that we can get the benefits. At the moment we're carrying just 14 days of inventory, compared to many of our reseller channel rivals carrying 60-90 days. That means when memory prices crash as they have recently we can pass on the cost saving. Their choice is to flush the channel and become price uncompetitive or devalue what's in the distribution channel and take a bath."

Gateway's Shepheard believes direct sellers' low prices are also helping reap the benefits of tough business conditions. "The market in Europe has been tough, particularly in Germany. When that happens, people look more closely at what they're buying."