Commander cuts raise vendor concerns

Commander's decision to withdraw from the IT hardware reseller business and shed 600 staff has raised alarm bells at some of its key vendor partners.

The ASX-listed integrator has cut nearly one-third of its workforce, or 600 people nationally, reducing total headcount to 1400. Redundancies largely came out of IT hardware sales and support areas and will cost $17 million upfront, but are expected to save Commander $65 million per year.

The staff cuts are part of a broader turnaround plan to return the business to profitability. One of the biggest changes announced is to stop reselling high volume, low margin IT hardware. CEO and managing director, Amanda Lacaze, said IT hardware sales represented up to 50 per cent of total revenue, but less than 10 per cent of gross margins. In its full-year report to June 30, 2006, data hardware sales brought in $536 million. She estimated half of these sales could be wiped off its books.

"We will work with vendors to ensure customers have alternative options for procuring those products," she said. "There may be arrangements which may not involve us having warehouses all over the country or consuming working capital."

However, some volume business could be retained as part of a total managed service offering, Lacaze said. Toshiba information systems division general manager, Mark Whittard, is concerned about Commander's decision to cut back IT hardware sales and is waiting to learn how many customers will be affected.

Commander is one of Toshiba's top 10 partners and holds platinum status, but Whittard warned it could drop significantly down the ranks and lose rebate and sales privileges as a result of the new business plan. "It is of concern for us as they are a big channel partner of ours," he said. "If Commander cuts half of its IT hardware sales and half of what it does with us, it would change their position with us significantly and open up huge opportunities for their competitors."

Once customers have been identified, Toshiba will look to move them to another supplier, Whittard said. A likely candidate is NZ-based integrator, Datacom. "From a B2B standpoint, we could end up having one or two others that wind up being bigger than Commander," he said.

Acer channel manager, Greg Mikaelian, said Commander's ranking as one of its top national gold partners was also under threat. He was unsure how many Acer customers would be affected.

"We have taken measures as a vendor to ensure our customers are looked after. We have a few key customers in the government and education space with Commander," he said.

Commander and Acer's joint legacy customers include large government departments such as the police, as well as private education institutions in Victoria.

Mikaelian said several had already started working with other partners.

"Our priority is to ensure customers stay with Acer. We have other strong partners: some in government and some in education. We will work with those partners moving forward to make sure we maintain preferred supplier status," he said.

Rival Acer partners that could benefit include Canberra-based integrator, Dataflex, Leading Solutions and Fujitsu, he said.

Mikaelian was saddened by Commander's struggle. "It sends the wrong signal to customers and it's not good for the channel overall," he said.

"What we have learnt historically, with players such as Powerlan for example, is those who get very big very quickly have had the whole thing unravel. My advice to other partners is not to grow so quickly - it adds a lot of strain, particularly if you're also buying companies. You end up with a disparity in systems and culture and it's hard to integrate those things."

HP and Cisco, which also sell through Commander, refused to comment on specifics relating to the integrator's operational performance or business strategy.

"We will keep the lines of communication between HP and Commander open and remain committed to ensuring HP's customers continue to receive the high level of service and support," an HP spokesperson said. "As a channel partner of HP, we hope the company's turnaround strategy will generate the outcome they seek."

As well as focusing on improving high margin sales, Commander's new business plan includes selling off non-core assets such as its Affinity recruitment arm and mobile broadband subsidiary, PBA (iBurst). The company is talking with interested parties from its data room last year. The list is understood to include Optus, SP Telecom and AAPT.

Funds from any sale will be used to pay off pressing bank debts, which have been pushed back. Commander will now pay just $3 million of a $10 million repayment due on February 28, with the remaining $7 million up on October 31. Another $115 million, originally due on October 31, has been extended by 12 months.

But while the company hopes to be cash positive from this month, it said poor performance forced it to lower FY08 EBITDA forecasts.

A refreshed management team will support the new business plan. Alongside Lacaze, Commander has appointed former news.com executive, Alistair Carwardine, as its chief technology officer, and Peter Housden as chief financial officer. Its customer-facing executive team now consists of Jane Lancsar (enterprise), Geoff Horth (corporate) and Chris Jenney (SMB).

Toshiba's Whittard expected the changes will be positive.

"Commander has tried to be all things to all people but you just can't do that - you need to know your core competencies and stick with those," he said.

"There's a lesson for all resellers to be aware of their value-added capabilities."

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