Margin makers

If you sell computer hardware, here are two words that could make you reach for the Tums: “profit margin.” Intel and AMD have been waging price wars. Average selling prices for components, such as memory, have been under pressure for months and months. If, for example, you’re a Hewlett-Packard reseller, the list price on a standard SMB notebook has risen by this fat amount over the past year: Zero percent. You get the picture.

But value-added resellers are finding opportunities to deliver value to customers and find profit margins on hardware. And they are finding those opportunities on the periphery. From LCDs, to projectors for conference rooms, to network scanners, solution providers are evaluating customer needs and filling them with hardware solutions that keep everyone happy.

In interviews with a series of vendors and solution providers, a picture begins to emerge of a market in which hardware margins are shifting to wide-ranging portions of the network where infrastructure is being updated for the first time in several years.

Some manufacturers are using channel hardware profit margins themselves as a weapon to win market share from competitors. In peripherals, there is no single rule for estimating how a margin may shape up. Whether talking about printers, add-on storage, projectors or scanners, for example, a reseller’s profit margin can range between three percent and 30 percent per sale depending on unit volumes, vendor incentives, software integration and service contracts. And value added to each sale can range from simple out-of-the-box setup to, in the case of digital signage or data centre power management, incredibly complex architecture and months of planning.

Some manufacturers provide margin opportunities to the channel up front, in the form of discounts. Some provide them on the back end, after volume quotas are met. If there is a common theme, it’s this: Solution providers are eager to provide value to their customers, and they are growing ever more careful to make sure they don’t sacrifice profit in the process.

Here is a rundown on margin opportunities in six different areas of peripherals, including products, vendors and programs:

Projectors
Kevin Baylor, owner of solution provider Aequus IT, said he has found some margin opportunities in the projector space even though his company focuses on services, not hardware. Success comes with engaging the customer.

“We have multiple conversations, try to create road maps for how technology fits in with their user needs,” Baylor said. “If I see they have a conference room, I’ll ask what’s their need for a projector. Especially larger clients, we’ll see they have multiple conference rooms and they’re looking for projectors.” Baylor said his company provides Canon or Dell projectors and the devices will add value to an overall project.

“We’ve re-energised our projector [total addressable market],” said Jeff Volpe, vice president of marketing at ViewSonic. “We can walk in [to a customer account] with a VAR, or they can walk in on behalf of ViewSonic. They can see a small conference room, and they can see an opportunity to add value with a 4500-lumen projector,” Volpe said.

Displays
Although margins in the higher-end LCD space continue to shrink and fight downward pressure, the news isn’t all bad. Higher-end and larger displays — once mainly located in higher-end engineering or design shops at large enterprises — are now affordable to small and mid-size businesses. That opens up the technology to a broader customer set and, at the same time, allows solution providers to deliver a more potent solution.

Mary Meeker, president of MEM Systems, a solution provider and partner of NEC Display Solutions, said the best way to push margin up from single digits is to use LCDs as part of a broader signage solution — one that includes software, servers and services. “With the display devices, they have gotten so short on margins I’m lucky to get five [percent] to 10 percent margin,” Meeker said. “Sometimes you can take that margin from eight [percent] on the average, and you can lift it to probably 25 percent or 30 percent margin.”

Printers
Among Oki Data products that VARs can deliver to enterprises of all sizes is its C8800 series desktop tabloid printer. It’s priced at US$2399, prints 11 x 17-inch sheets of paper, and, for solution providers in the ProfitOps program, offers 12 points of discount up front and the potential for other incentives. “We’re educating [VARs on] how to make money,” said Jackie Paralis, Oki Data’s senior marketing manager for channel development.

Among other printer vendors with new products or programs that they believe will be a target-rich opportunity for margins: Lexmark International, which released the Legal Partner multi-function printer, an all-in-one, 50-ppm unit with functions such as “Scan to Court” for lawyers to keep within guidelines of most courts that accept digital files; and Xerox, with a series of multi-function printers.

Konica Minolta, is talking up potential future releases including the bizhub C30P/ C30PX, and several software solutions that integrate with its hardware.

Another important aspect is the attached sales of ink, toner and paper — the lucrative, but often elusive, supplies business.

Scanners
Stand-alone scanners, like almost everything else in IT, have seen vast improvements in performance and functionality. And as with other peripherals, margin opportunity is like automobile mileage: It can and does vary.

Kodak, which began working with partners about 18 months ago with the introduction of its ScanStation 100 network scanning device, has mapped out a strategy for helping solution providers grow their profit margin, said Don McMahan, general manager and vice president of sales for Kodak’s digital imaging organisation.

“We put some back-end dollars to these guys that really help them with margin; it has helped them to see a 25 percent better margin,” McMahan said. “It absolutely requires professional services.”

That makes it more than a routine peripherals sale, and it is largely targeted at institutions such as banks that need to scan, sort and analyse detailed documents such as cheques.

UPS and cooling
As with other peripherals, solution providers find that there are two ways to increase margins for uninterruptible power supply (UPS) and other power and cooling peripherals: Add services and grow volume.

Over the past two years, APC has rolled out additional functionality and encouraged solution providers to take a holistic approach to data centre design when including peripherals such as UPS boxes as a way to increase value to the customer and margin opportunity for the VAR.

“On the one hand, our [average selling price] on InfraStruXure has gone up more than 35 percent over the past two to three years,” said Rob McKernan, APC’s channel vice president. “We are taking a solution and a set of products and, continually, adding products to that solution set.

“The major story [solution providers] are seeing is they can make more money off this,” McKernan said. “It’s not taking years and years to get certified. There’s such a strong demand today for power protection and cooling of data centres.”

Add-on storage
Dave Mohyla, president of DTI Data Recovery, a solution provider, said that both Seagate Technology and Western Digital have worked hard to create opportunities for solution providers to drive added value to even basic desktop, add-on storage solutions.

“Western Digital does try to [add value opportunities] as much as it possibly can,” Mohyla said. “Seagate is taking a lot on themselves. It is packaging a lot of different VAR opportunities with its label on it. Both companies are very much in tune with working with the VARs to try to package their storage, or add value to their storage.”

Perhaps as much as any segment, add-on storage has seen erosion in average selling prices as capacities have skyrocketed.

Sandisk also has stepped up by providing APIs and SDKs to other manufacturers as well as solution providers, Mohyla said, so basic hardware can be fine-tuned for different applications or functions. The math does, in fact, work both ways when factoring value-added offerings and profit margins, he added.