Chips are down for IT&e

As a result of IT services firm IT&e posting an after-tax loss of $13.85 million on just $23.34 million in revenues for the second half of 2000, the company is considering the divestment of its distribution business, Chips.

In this same period, IT&e lost its CEO and CFO, and culled several staff. The company has closed down its Microarts PC assembly business and is now looking to merge its distribution business, Chips, with another similarly sized player to return to profitability.

Chips contributed a loss of just over $2 million in the six months to December 31, 2000, a result the parent company wants turned around immediately. A statement IT&e released to the Australian Stock Exchange suggested the Chips business would seek additional products for distribution, eliminate inefficiencies in inventory management and attempt to divest the business via a merger with a similar organisation before the end of 2001.

Dean Wilson, executive director of IT&e, said Chips will announce a major new vendor partner as early as next week but, if anything, is concentrating on cutting back rather than increasing vendor partners.

"It's not a case of more is better," he said. "We are always reviewing our vendor lines, and our current philosophy is to concentrate on around 10 or 12 vendors. The days are gone where a distributor just went overseas, sourced products and distributed them here. These days you've got to be a lot more creative."

Wilson said Chips will be exiting the distribution of system integration products and move into 'newer, high-growth, high-technology products', none of which he is currently willing to publicise. "Given that we have a strong Apple line and PC line, all I can say is that these products will sell into both of these markets."

Part of Chips' loss was due to debts owed to the distributor by resellers. Abnormal charges against stock and debtors made up over $1.13 million of the business' $2 million loss. Wilson said some very high-profile customers were having trouble paying their bills.

"It's a two-pronged problem," he said. "You have to provide products that are going to generate solid revenues for your clients, but then you also have to be careful who you are selling to. Money is tight out there."

Wilson said he was bound by confidentiality not to discuss the possibility of an imminent divestment or merger of the Chips business, but said he believes it has a strong future.

The management of IT&e will now turn their attention to becoming a pure e-commerce and IT services business, developing software applications and billing for systems integration work. It expects to be cashflow positive before the end of the June 2001 quarter.