Market turns the screws on hardware resellers

Market turns the screws on hardware resellers

Smaller hardware resellers are in danger of becoming superfluous, according to analysts at Macquarie Technology Investment Banking, as their larger peers consolidate and create additional services capabilities.

In his quarterly update on private equity capital markets for technology companies, Macquarie Equities Research analyst Alex Milton said recent quarters show hardware resellers are doing it tough, only surviving on the promise sales will pick up in the third and fourth quarters of 2001.

Milton suggests the next few quarters will see a ‘survival of the fittest' battle fought on among hardware resellers in which only the larger, service-orientated resellers will thrive. He cited Volante's recent history of acquisitions (such as its purchase of AAG last year) as an example of how larger hardware resellers are able to successfully leverage their fixed cost base with increased revenue streams and better services capabilities by acquiring their peers.

Milton claims these larger resellers, armed with a bevy of value-added services and increasing economies of scale, will squeeze some of their smaller competitors out of the market.

"When I speak to IT decision makers, they are looking for a full service reseller, resellers that are on time and effective, resellers that can tailor everything to the customers' need," he said.

The value-added services he recommends resellers consider include asset tagging, catalogues and on-site services. "The end-users are also going to be attracted to resellers that can provide all the documentation in a format acceptable to their back-end systems," he said. "It takes the costs out of the user's business process."

Milton said investors are showing a lot of caution when dealing with technology stocks, particularly hardware resellers. "The investment community would be concerned that volumes are down," he said. "If investors are listening to IBM, Dell and Compaq telling them volumes are weak globally, then they are naturally concerned about the pressure this places on resellers."

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