Analysis: Why systems integrators are hitting the wall

The global financial crisis has been blamed for the recent spate of channel players falling on hard times, with project-based revenues all but disappearing.

In the past month, CRN reported that Leading Solutions, Comsys, S Central and recently Applaud had either hit the wall or struggled with cash flow.

Jens Butler, principal analyst at Ovum told CRN that the recent problems faced by the integrators points to the fact that a high percentage of their revenues was "project-based discretionary spend", which disappeared over the past 12 months.

"[We] need to remember that Australia has a very high proportion of medium-sized local SIs (systems integrators) for the size of the actual market," he said.

Ricci Danieletto, managing director at Sydney-based integrator Applaud agreed with Butler, saying that a number of IT projects were cut because customers could no longer afford the technology.

"I can say categorically the catalyst for us was when a number of clients felt [the] pinch from the GFC," he said.

Danieletto said Applaud afforded financial "relief" to some customers by allowing them to cut or postpone projects booked with the SI, despite the potential impact on his bottom line.

The GFC and subsequent slowdown over the past 12 months has naturally impacted many businesses, said Dave Stevens, managing director at mid-market IT service provider, Brennan.

The company recently purchased S Central, which CRN revealed was at least in $10.8 million debt in mid-2009.

Stevens claimed the channel was going through a "Darwinian" effect, in which only those that have solid fundamentals in place will "survive and prosper".

Stevens believed this will lead to a period of consolidation.

"Larger players will look to buy out smaller businesses that represent good value," he said.

But both Butler and Stevens agreed the market was showing signs of improvement.

"Things are starting to improve in the market and customers are more confident," said Stevens.
"Financing is still tight for many, so there may still be some more hardship before the industry as a whole makes solid gains."

However, Butler claimed there were far healthier financial numbers coming through, with the IT market perhaps "over the worst of it in this space."