Another company has bowed out of the distribution game with ASX-listed IT&e announcing it would divest its computer hardware and peripheral distribution business, Chips, to focus on IT services in the finance sector.
Rising distributor IT Wholesale will take on several of Chips' product lines following a deal between IT&e and IT Wholesale parent company Cellnet Telecommunications.
The arrangement, which was announced to the Australian Stock Exchange last week, leaves IT&e to concentrate on providing IT services and software applications to the banking sector, which the company now considers amongst its core competencies. It also gives IT Wholesale a healthy growth medium in the Victorian and South Australian regions, where Chips had a strong presence.
Under the agreement with Cellnet, IT&e will hand over inventories and distribution arrangements. All other assets and liabilities will remain with IT&e, according to the companies.
IT Wholesale managing director Santo Pappalardo described the arrangement as providing "a very strategic fit" to the company's existing line of products. The distributor has been in discussions for about six weeks to take on the product line and has been meeting with vendors to discuss transfer arrangements.
The move is also set to strengthen IT Wholesale in the southern states, particularly in Victoria and South Australia which is a relatively new venture for the Queensland-based distributor. The company recently opened a Melbourne office in Coburg.
"This will cement our presence as a national distributor," Pappalardo said.
In the last 12 months, Chips has scaled back from a more extensive product line of more than 30 vendors to less than 20 niche products.
"The edge had fallen off the business because IT&e's core competency has moved away from distribution," explained Pappalardo. "In a business like IT&e, I don't think you can be a master of everything.
"Chips has dropped some brands and products, such as video cards and the like, but that was a case of natural attrition. The remaining were good strong brands we could strengthen our offering with.
"We have already met with vendors, and most of them have indicated they would be willing to migrate their products."
The deal is still subject to whether Chips' vendor partners will assign distribution agreements to IT Wholesale and the completion of due diligence of the inventory.