Toshiba Changes Terms Of Insight/PC Wholesale Pact

The change effectively eliminates PC Wholesale, which is owned by Insight, as an authorized distributor of Toshiba notebook products effective July 1.

"Toshiba made channel changes with regards to their program and we had a choice between a distributor or reseller agreement," said David Casillo, senior vice president of product management for Insight. "We selected the reseller agreement. We will continue to purchase Toshiba product as a reseller both direct from Toshiba and with distribution partners as needed."

The change effectively prevents Insight from obtaining better Toshiba pricing and market development fund (MDF) terms than rival direct marketers or resellers. That, however, was not the catalyst for the change, said Jerry Lumpkin, vice president of business channel sales for Toshiba's Digital Products Division. "We wanted to focus our resources on Insight which is the largest piece of the business and very strategic to Toshiba's channel strategy," he said.

Lumpkin stressed the change was made in partnership with Insight in order to focus on growing the Insight direct marketer business. VARs that were buying from PC Wholesale will be directed to Ingram, Tech Data or Synnex, he said.

Lumpkin would not disclose how many PC Wholesale VARs will be impacted by the change.

"Insight is a good partner," he said." We view Insight as a very strategic partner going forward and we will continue to invest in that relationship. They are working very diligently with us to grow the business."

"This is a big win for everybody," said one executive for an Insight competitor who did not want to be named. "The way I look at it is Toshiba just leveled the playing field for us. Now Insight is going to have the same (Toshiba) pricing as us."

"We need a level playing field across the board and we expect the manufacturers to give us that whether it is Toshiba or anyone else," added the executive. "I am very adamant about that. Availability and pricing should be the same (for all direct marketers and resellers)."

One distribution executive, who asked not to be identified, said Toshiba had hinted for a couple of months that it might deauthorize PC Wholesale as a distributor. "They didn't give us a specific reason, but we were told [PC Wholesale] had a very, very, very, very narrow customer base," the executive said. He estimated that PC Wholesale had less than 10 customer accounts that accounted for up to 90 percent of its volume. "They were drumming a lot of business through a very small set of customers, which is not a traditional distributor model," the executive said.

The distribution executive did not know if the PC Wholesale/Insight model was causing issues with other vendors. "I don't hear about them nearly as much as four or five years ago when their name would come up constantly with the vendors we were both selling. Now it's not even once or twice a quarter, but it's usually a fairly sizeable deal," the executive said.

If Insight gets better pricing by buying on distributor terms through PC Wholesale, it is a potential competitive disadvantage for other players, the executive said. "I could see that if they are leveraging the vendors' programs from [both] a distribution perspective and a reseller perspective," he said.

When Toshiba announced its new partner program earlier this year, the vendor increased profit margins for solution providers buying its notebooks from distributors. At that time, Lumpkin touted the changes as a way to level the playing field for solution providers competing against direct marketers such as CDW and Insight.

Insight Enterprises acquired PC Wholesale as part of its $150 million purchase of $1.5 billion Bloomington, Ill. solution provider Comark in 2002. Insight does not break out PC Wholesale sales and earnings.

PC Wholesale, for its part, touts itself as a full line distributor of computer solutions. The distributor says on its website that it currently stocks over $100 million in inventory. As of press time, it also still lists itself as an Authorized Toshiba Distributor.