An old one (but a good one)

It's one of the oldest rumours still flying around the local IT industry, but stagnant product sales in the first half of Dimension Data Australia's financial year will once again have people asking whether the integrator will offload distribution arm, Express Data.

Financial analysts have long said that ED should be sold because it isn't core business for the South Africa-based integrator. Those grumblings have only gotten louder in recent years as services become increasingly central in the DiData portfolio. It's also the only distribution business that DiData operates anywhere in the world.

But there are two key stumbling blocks when building a case for the sale of ED, the first of which is identifying prospective buyers. ED has long been touted as the perfect vehicle for one of the world's biggest distribution houses to move into Australia. Yet the chances of this happening seem slimmer every year given that the market is so mature and major players like Ingram Micro, Synnex, Avnet and Westcon Group have already established a presence.

Tech Data is the name that crops up time and time again in ED sale rumours. As the world's second largest IT distributor, it's well documented that it needs to establish a presence in Asia-Pacific to remain competitive against Ingram Micro. But although the company has been going well recently, doubling net income to $US23 million in the first quarter of this financial year and acquiring broad-based Scandinavian player, Scribona, for $US83 million at the end of last month, I can't help but feel that Australia wouldn't be as attractive a proposition today as in years past. Anybody seriously considering a move into the region now would surely be concentrating on opportunities to service high-growth markets like China and India.

Other possible suitors with the financial clout to make a move would include venture capitalist firms but, given that IT distribution is about as attractive as Zimmer frame racing, you have to think they've got higher yield options for investing their pots of money.

So what about our current crop of distributors? With global revenues in excess of $US30 billion, Ingram Micro certainly has the money. Ingram would see obvious benefit in acquiring about 60 per cent of the local Cisco business that it's found so difficult to compete in, and would also pick up a lot of IP valuable to its solutions division, but that would depend on the asking price. Westcon would love to pick up ED's Cisco business given that the networking giant is its biggest vendor around the world, and might also find the prospect of removing its largest competitor an appealing one, but whether these benefits justify the market valuation is a question for CEO, Tom Dolan, and his team.

The second stumbling block when discussing the possible sale of ED, as noted by a JP Morgan analyst (see page 1) is that it accounts for more than half of Dimension Data's local revenues and operating profits. Core business or not, letting that go would be a difficult pill for a listed company to swallow.

Brian Corrigan is the editorial director of ARN.