The PC repair channel has been reeling from a double whammy after two leading repair chains hit the wall in the space of six months. National computer repair company NCSS went into receivership in September, following the collapse of 105-year-old Australian IT firm AWA earlier this year.
The failures put immense pressure on those computer repairers who sub-contracted to AWS and NCSS. These smaller providers now face major financial losses because they are owed money by the collapsed firms – and they’re still waiting.
More than two months after its fall to administrators in late February, AWA was acquired by Cabrini Health. The move allowed Cabrini to expand its technology services, which included biomedical engineering, assistive technology services and facilities management.
The price was not disclosed but Cabrini indicated that the deal would preserve 130 AWA jobs around the country. At one point, AWA had a nationwide network of field service agents and 250 employees. In its new guise, it will be a shadow of its former self, and working in a different industry.
At time of writing, NCSS faced an unknown fate. Administrators Smith Hancock conducted the first creditors meeting on 5 September, and receivers PBB Advisory were still fielding offers for the east coast company. According to PPB, NCSS has around 80 employees and more than 90 service agents. The company’s decline is clear to see – NCSS reported a 2013 turnover of $16.8 million and 2014 turnover $11.3 million.
PBB partner Alan Walker said the firm had already attracted strong interest, but it was early days yet. “We are currently working with half a dozen or so parties, taking them through the due diligence process and they have expressed a keen interest in acquiring the business.
“The discussions we have had so far have been positive but it’s still at a fairly early stage of due diligence that the parties are working through," he added.
What were the drivers that sent two of the nation’s biggest PC repair groups over the edge? And if two large companies can go down, what are the prospects for others in the space?
Walker said PPB was still crunching the financials but indicated NCSS had gone off the rails because of “a couple of loss-making contracts".
“They weren’t able to turn the business around on to a sustainable footing," he said.
“The administrator will issue a report to the creditors in the next couple of weeks which will give the background for why the company failed and the financial information will provide a little bit more context around why the company ended up where it did.”
The future might be unsure but the implications are clear – in stark black and white on the creditors report. NCSS owes $3.6 million to dozens of repair agents across the country. The debts range from a few hundreds dollars up to some computer outfits owned more than $50,000.
The industry players CRN spoke to had their own opinions on what may have driven both companies over the edge, and they feared for the future of the PC repair industry.
These channel folks said that over the past five years, vendors have been screwing resellers by paying too little. Echoing the receivers, they claim that AWA and NCSS took on too many uneconomic jobs and couldn’t sustain it.
Next: What went wrong
Syd Borg, chief executive of PCSA, one of Australia’s most enduring computer resellers, said it was just about impossible for IT companies to get any real money out of repairs.
“I had an authorised repair centre here – I was an NEC authorised repair centre; I was an Acer authorised repair centre – and I closed it down because it was continually running at a loss," Borg said.
“We are Australia’s oldest IT company and we’ve had repair centres since Adam was in shorts and it was a big call for me to shut down our repair centre. If you go back five years ago, that wasn’t the case at all but nowadays, most of the manufacturers are tending to take on the work themselves with their own people."
He said repairing a laptop might take around two hours but the manufacturer would only pay $17-$25. It just isn't worth it. What’s worse, he says that if the customer comes back, the repairer won't get paid for the second job.
“Why would I bother? Let the manufacturer worry about it, I’m not going to do it for $25. It’s ridiculous. It doesn’t matter if you’re turning over 500 laptops a day – it’s still not worth your while.”
The blame doesn’t only lie with vendors, added Borg. Technological change is also creating the problem. “It’s not entirely the manufacturer’s fault because you’ve got to remember that the product is a $500 item now and they are expected to put two to three years of warranty on it. If I have a $399 Chromebook and I’ve dropped it into the repair centre to get it fixed, how can Acer or HP pay us $90 or $100 a job for a $399 product?
“That’s where it gets back to the theory of disposable products. Do you bother, or do you throw it out and get another product? You can’t sell a $399 product and put a two year warranty on it," he added.
“So it’s not so much that they’re screwing them, it’s just that they have nothing left to play with. There is no money in the kit that allows you to have a resilient or comfortably funded repair centre. I would be shocked if there was a reseller out there making any money on it.”
Borg said the average repair centre employing three engineers would cost about $400,000 a year to run. “With $400,000 and you’re getting $30 a job, you’ve got to do be doing 13,500 repairs a year. That’s 250 jobs a week."
Mark Pace, managing director of Sydney-based Sterling IT, which provides a national service centre for Honeywell, said the problems reflected a broader trend in the industry. “Customers are keeping their equipment much longer and they are tending to buy even secondhand to replace computers these days.
“We are also finding that doing upgrades and repairs is going by the wayside as well. For a traditional service centre environment, it means customers don’t want to pay fees. Customers are not spending money to get the product service. What’s happening for the service industry is that the margins are dropping, the amount of work is also dropping which creates this vortex of businesses feeling the pressure.”
Pace concurs with PCSA's Borg that the prices vendors are paying for service are falling.
“Obviously prices are getting pushed down a fair bit. When you’re getting paid a $20 fixed fee for repair, the paperwork will cost you more than that.”
The woes of AWA and NCSS have left some resellers high and dry. Paul Lawrie, a director of Rockhampton-based Consulting One, which does a lot of work for HP, said NCSS still owes him $77,000. “We submitted it as a claim. We’re waiting to hear whether we get zero or some of it. I’m pretty sure we won’t get it all.”
He said resellers could still make a success in the repair business but these days, they needed to be super-efficient.
“To be able to prosper in that space, it comes down to your organisational efficiency," he says. “Our volume is large enough to have dedicated technicians to do multiple jobs and keeping our admin low but I feel for the smaller guys who are doing it ad hoc. There aren’t big margins at all and they have to travel.
“The margins are razor thin so it has to come down to margins and being efficient. With most of the HP stuff, for example, you are probably talking $60 to $80 an hour and that includes travel. If you are going into a site to do repairs, you would want to do a couple at a time and be very careful about your travel and expenses. If we have a job that has 300 kilometres of travel, there is no way we can break even on that and we would probably be going backwards," said Lawrie.
“We have our own ticketing systems so we’re very careful about how we schedule our jobs and despatches and we make sure we do them in batches. Part of that strategy is also having the same dedicated team doing it over and over so that we are really efficient. If you pay a flat fee to do a fix then obviously you would want to do it as fast as you can and efficiently as possible and get good reviews from the customer.”
Don Card, general manager of Queensland-based repair group National Warranties, agrees that resellers are being squeezed on price. “In the last year or so, people are just trying to get the service for close to nothing. The culture of ethics and professional behaviour has taken a hit across the board."
He believes this is where NCSS and AWA came unstuck with pricing that couldn’t cover their high fixed costs. “If they bid unsustainably low prices to get the business, that would, over a period of time, drain their cash because they would be getting a cash flow but they would paying out more than coming in."
Vendors say the pressures are driven by the technology. Matt Codrington, managing director of Lenovo ANZ, says it’s part of a trend that’s challenging the industry as a whole.
“There are a number of trends that have impacted the PC repairs industry and one of them is the shift from the traditional PCs to a wide range of devices, including tablets and multimode devices both in the consumer and enterprise market," Codrington said.
“As technology improves, computing devices are also coming equipped with longer lifespans and are less likely to fail. This is something Lenovo is familiar with given our ThinkPad product line, which is renowned and trusted for its durability. Lenovo is aware of these trends and works closely with channel partners to ensure we deliver top quality computing products and best-in-class support services for our products.”
Are we moving into an age when computers will simply be thrown out and replaced when they break down? The tensions are clear And while we aren’t seeing the end of PC repairs as we know it, it's clear the market will sustain fewer outfits. Those that survive will have to adopt new strategies to stay in the game.
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