Sun squeezes prices 7.25 percent across the board

Sun Microsystems cut prices across its entire range on 12 February, potentially tightening the vice on profit margins for the channel.

Paul O'Connor, channel manager at Sun Australia, confirmed that Australian prices were cut 7.25 percent and New Zealand prices by 8.2 percent across Sun's hardware and software products.

Also, Sun's support services division would offer a 10 percent cut in support pricing on volume servers from 25 February until 31 July.

"This is a broad-based currency adjustment," he said. "With ... Australia and New Zealand, there is a difference in terms of impact."

O'Connor said there were no other reasons for the price cut, which was required to keep Sun products competitive in the face of a stronger Australian -- and, relatively speaking, New Zealand -- dollar.

Sun regularly reviewed pricing in relation to currency differences and adjusted its local pricing accordingly, he said, to ensure customers could get local deals on a par with overseas and with pricing offered locally by other multinationals.
 
"We timed this to follow on from our first quarter 2004 announcements last week, which had a whole swag of new products," O'Connor said.

He conceded that the adjustment could adversely affect product margins for Sun partners.

"We get the same feedback internally, from our own salespeople. They say, 'we used to get $100 for something but now we only get $92', but they've still got the same quota to make," he said.

O'Connor said he regretted the squeezing of channel margins but believed the move was unavoidable to stay competitive against other vendors and offer the fairest prices possible to end-users.

"On a macro level, they'll lose out in the long term if we don't. It's really kind of a moral obligation to our customers," O'Connor said.

Steve Murphy, managing director at Sydney-based Sun partner Frontline Systems, said that overall the price reductions may lift sales.

"This is effectively an RRP reduction and actually we just find that people buy more products," he said. "That's all positive."

A few years ago, channel players were concerned about their product margins but today most successful resellers had adapted. Most resellers today should be well aware that profits were made these days around services and other value-adds rather than product, Murphy added.

"Surely we all know that the way the market is in this industry, everything goes down. Margin is squeezed. I don't see any problem with it," Murphy said. "The aim of all companies is to get your margins elsewhere."