The decision by Australian integrator Commander Communications to sack 600 staff and shut its volume computer hardware reselling business is a timely warning for local resellers who focus mainly on hardware sales.
According to media reports Commander’s hardware business last year accounted for more than half of its A$1.091 billion revenues. However, it contributed almost no profit.
In an interview with Reseller News sister publication, the Australian Financial Review, the company’s recently appointed chief executive Amanda Lacaze described the reseller space as “a hard and brutal place".
She says that the hardware business had to be closed due to unsustainably low margins on resale, which forced the company to run nearly a dozen warehousing operations as it competed directly with the direct sales operations from original equipment manufacturers.
According to the AFR, for every $100 in revenue Commander made on volume hardware transactions, $90 was remitted directly to suppliers with little or no margin despite steep administrative overheads.
What is staggering is that despite half a billion dollar revenue, this unit failed to make a profit, even though a third of the hardware business was actually profitable.
Two statements made by Lacaze are particularly worrying: "There has been a lot of cash going out the door" and "There's no value-add".
This should serve as a wake-up call to all hardware resellers in this country
For years, there has been a trend of margins on hardware falling with some higher-value products, such as laptops, LCD displays or blade servers, shoring up more commoditised counterparts.
However, even high margin hardware will over time become less lucrative, as we have already seen with LCDs and laptops.
And as the uptake of thin-client computing, virtualisation and software-as-a-service accelerates, organisations will buy fewer desktops, servers and storage gear.
How much of your profit is dependent on low-margin, high-volume hardware? How well is your business insulated from changing technology trends? If you have sold always hardware, how far are you from developing a robust services or software business?
If you falter in your responses to any of these questions, act now. While the demise of your business may not result in the loss of 600 jobs, it will still be devastating to each of the six, sixteen or sixty people you employ now.
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