Zircon has taken its first steps into hardware distribution, acquiring NSW-based IT components and whitebox supplier, Global Business Technology. The deal is typical of the ongoing wave of consolidation affecting the hardware distribution channel.
Recently appointed managing director, Gwen John, said the acquisition would provide the company with a new reseller base to cross-sell its IP-based offerings.
It would also give it a well established distribution backbone to grow its services business, she said. Zircon had previously bought products from GBT.
"We became aware of the opportunity for a partnership or acquisition," John said. "When putting together the strategy for Zircon, it was clear that we needed to have distribution in place. So the GBT option seemed a perfect way to go forward." GBT, which was formed in 1988, distributes products on behalf of several well-known hardware vendors including Sony, D-Link, Epson, HP, Mitsubishi, BenQ, MSI and Panasonic. It also pre-builds systems.
According to John, the business is equally split between system building and distribution.
Under the new agreement, the GBT brand will be retained for the distribution business. Resellers from either side will be able to buy products from both organisations. Zircon has also kept the distributor's logistics operations and will continue to provide whitebox systems for its reseller base. The joint organisation has moved to new premises in the Sydney suburb of Newington.
GBT's 10 staff had been retained, John said. However, former GBT director, David Khouphongsy, who is currently assisting with the transition, would not be working with the company long term.
Current staffing levels are a far cry from the 34 employees GBT claimed to have in March last year. The scaling back is indicative of the profitability problems being faced by many systems builders.
The sale of the business also reflects ongoing consolidation across the hardware distribution landscape. It follows the merger between Omega Technology and national systems builder, Hallmark, in March.
According to ARN sources, the Hallmark business had dropped staffing levels by more than 30 per cent in 2004. The company had also closed its Sydney and Perth branches due to poor performance.
The GBT buyout comes after Digiland's decision to move away from its floundering whitebox and hardware wholesale model and address the more profitable digital home market. It was understood the distributor had dropped staffing levels from about 80 in 2003 to just 10 in 2004. The company also reported a loss of US$10.1 million and a $US50 million drop in revenue during its 2003/2004 financial year.
John said it was getting increasingly difficult for whitebox providers to remain focused on system building alone. But the systems side of the business continued to perform strongly and would be sustained under the dual organisation.
The acquisition was part of Zircon's broader plans to provide a full suite of managed communications services, John said.
"Our next step is to get some firm partnerships in place," she said. "We'll look at the IP side and secure some relationships there."
The company was also keen to build up its stable of integration partners, John said.