Building up a profit with components

Dealing with margin pressures

The components space has often had a reputation as a tough low margin sale for the channel. That is at least the case for the basic box-shifters, as with most sectors of the IT channel. The key is knowing how to make the most from component sales, and, as ever, adding services.

“Services have become a major part of partners’ business today,” said AMD’s Leung. “The margin from the component is small, but the services opportunity is huge. In terms of the value of a customer contract, the components are about 10 percent and hardware is around 15 percent. The rest is services. After-sales services are still one of the highest requirements for the end-user, and resellers need to be aware of the services opportunity.”

Leung said the most important role AMD plays is training to assist partners with their services game. “As a vendor we need to provide that type of support. We have started to do web training and [are] spending time to educate customers, too. It is the reseller’s sales people that you need to educate, too, and that is something we have been doing.”

Intel’s Tapsas said: “For the partners who purely resell components and do not build, there is little value for them. It is about using the components to build more complex solutions where resellers can add more value.”

Gigabyte’s Chen agreed that the component space is tough, with distributors and resellers not enjoying large basic margins.

“There are also lots of component price drops so resellers need to be dynamic. Distributors are very important in terms of supporting resellers. We try to manage our channel so we do not have too many distributors, and the ones we do have operate in different markets. This avoids over-distribution,” said Chen. “If resellers want the higher margins, they can provide more services to end-users. To provide a good service, resellers need to come to a vendor who assists with aspects like technical support.”

Teagtech’s Ortega said: “Components and ultra mobile devices all suffer from a tightening of profitability. As a result it is important for resellers to look for ways to add value by bundling services, like maintenance agreements, or as witnessed more recently, to look for ways to provide market specific turnkey solutions; for example, home valuation software, or doctor and patient applications which sit on these devices.”

Altech’s Hartin said the components channel has a variety of end-user markets with system builders buying hard drives and the retail market being the main outlet for upgrade sales.

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