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Maxtor gets serious about stopping grey market in its hard drives

KPMG/AGMA study found that US$40 billion worth of IT products are re-sold on the worldwide grey market annuallyrn

Franziska Hanreich, Maxtor Corp.’s new director of channel compliance, understands her job will be next to impossible to accomplish.

The former director of financial planning and director of business planning at the Milpitas, Calif.-based hard drive maker has been mandated to eradicate grey

market activities and counterfeiting of Maxtor products.

Maxtor, which lost its CEO and posted financial losses in November, created this position for Hanreich.

According to the Alliance for Grey Market and Counterfeit Abatement (AGMA), a group made up of 10 IT vendors, grey market activity accounts for more than US$40 billion in losses worldwide for IT companies.

Hanreich admitted she is not so naïve to believe she will be able to eliminate grey market activity all by herself.

“”There is no silver bullet,”” she said. “”My approach will be to get input from customers and concentrate on inventory management and have a consistent pricing policy.””

The problem of grey market, in Maxtor’s eyes, stems from the channel price forwarding and false reporting. Counterfeiting is a small part of the problem, Hanreich said. Hanreich’s first plan of action will be to have no more than four to six weeks of inventory in the channel.

“”Our approach and the industry’s as a total is to address the grey market as it comes up or deal with it as an isolated incident. Now we are more dedicated. We will have a more comprehensive and direct approach and we will not be reactive to grey market activity,”” she said.

Canada versus the U.S.

Hanreich could not pinpoint the differences in grey market activity between the U.S. and Canada. She said it was too early to give an accurate comparison. She did say, however, that the grey market problem in America will show up in China and anything in Europe will affect Canada. “”We have to look at all geographies to try and see uniqueness. This is a worldwide problem,”” she added.

To even make a dent in grey market, Hanreich said Maxtor has to work with its distribution partners around the world. She is currently planning on coordinating externally and internally to put tools in place for identification prediction to ensure best practices are followed by all.

“”It all comes back to inventory management and if we keep it tight and balanced, there will be much less room to play,”” she said.

She also said there are only methods such as prosecution and stiff fines for grey market activity. Some AGMA members, she said, have taken this route. She hasn’t yet start evaluating those options.

Last September, Hewlett-Packard, an AGMA member, sued a Tennessee-based reseller to recover more than US$8.6 million in pricing discounts.

HP’s law suit alleges that defendants told HP that the reseller had opportunities to sell HP and Compaq products to a beverage wholesaler in Kentucky.

“”The challenge is sizable. Even a dollar per drive is sizeable for us.””