Turf war takes toll on margins

Tom Kelly: Essentially the whole sector is being devalued

Top integrators have voiced concerns that the recent power struggle for market share has caused industry margins to drop for the first time in five years.

Terry Burt, chief executive of 2e2, said that “one or two” of his rivals had been guilty of discounting heavily in recent months, leading to a margin crunch on both product and services deals.

“Margins have been ex­tre­m­ely stable for five years and this is the first year we have seen them move around,” he complained.

“People are very keen to win market share and are working out how to make margins once they have won the deal. It is a perfectly reasonable strategy, but has to be watched very closely.”

Simon Aron, joint managing director of Eurodata, agreed. “2e2 is quite right – there are a couple of groups in the market that are unnecessarily aggressive with their prices. This includes the manufacturers selling direct; it is not just the partners.”

Tom Kelly, UK managing director of Logicalis, also said margins had come under greater pressure over the past year and pointed the finger at overly aggressive rivals.

“There are people trying to sell at cost or cost-plus-one who are essentially devaluing the whole sector,” he said.

Kelly argued that the industry as a whole should work to ensure the margins available reflect the intellectual property that goes into a sale.

“The industry has to look at how it goes to market,” he said. “A lot of intellectual property goes into systems design and the client gets it free. The way we have allow­ed the industry to develop has devalued its worth, and that will not be easy to change.”

However, Gary Dobson, sales director of Cisco partner DTE, disagreed: “I don’t know why the big dinosaurs are moaning. We are making more margin than ever and still giving clients the best price they are going to get.”