Bell sounds a hopeful note

Paul Briggs talks to Don Bell, chief executive of distributor Bell Microproducts, about his high-octane strategy for the fast-moving IT industry.

Don Bell, chief executive at distributor Bell Microproducts, builds and drives sports cars so he knows what it's like to live life in the fast lane.

CRN editor Paul Briggs caught up with him at the company's ThinkSME event in London to talk about his high-octane strategy for the fast-moving IT industry.

Over the past few years, Bell has widened its portfolio and moved from a being a specialised distributor. Has this strategy been the reason for your recent string of losses?
It's a few things. We bought eight companies in three years and it seemed that every company we bought, especially in the boom times, just flourished. We bought two companies in 2001, both in the enterprise arena.

One was a heavy-duty Compaq house that became a Hewlett-Packard house and lost money for a couple of years. We had to turn those companies round and now they are both in the black. When you buy eight companies in three years you wind up with too much overhead. We have tried to get that overhead out.

We were geared up to growing at about 70 to 80 per cent a year, with 80 per cent growth in 1999 and 70 per cent growth in 2000. We went from being a $250m company to being a $2bn company. Growth then fell to about five to 10 per cent during the recession, so again, there were too many overheads.

What do you do in a recession? You can cut back. You can cut everything. But we made a conscious decision at the beginning of 2001 that we would continue to invest in storage solutions, storage systems and infrastructure.

This decision came in the belief that those that invest in a recession grow exponentially when you come out of a recession.

However, we didn't know this recession was going to last as long as it has. I'm glad we didn't know that back then because we might have done something differently.

But we do see us coming it out of it. The number one priority is to get the company back in the black. We did lose a bit of money in the last quarter, but it was a little less than we originally thought.

We will probably get Bell back in the black at best next quarter (Q3), at worst in Q4. So we've come a long way.

What has been responsible for taking so much margin out of the storage business recently? Is it companies such as Dell moving into the sector through its relationship with EMC?
The Dell/EMC relationship is smart move, but there are other things going on out there. When positioning for market share, some of our suppliers are doing things that are hurting the channel.

Basically it's excess supply and not enough demand. We just need demand to pick up and to put a little restraint on the supply cycle. The second quarter is seasonally a down quarter.

Credit and cover are a big issue in the channel now. Last year Bell changed its relationship with ATI Euler Hermes in the US. Some distributors are currently trading uninsured on some lines. How important is it to have cover these days?
I guess it's perception. In the US it's less vital than it is in the UK. And it's even less so in Latin America because you just can't get insurance.

We are selling in an uninsured mode more than we ever used to. We are also looking at the cost of insurance for certain products and deciding if it's worth it. In some cases, we give money to insurance companies for certain products and in others we just self-insure.

We are also more aware of the scams that happen from time to time, so in the US we are primarily trading uninsured.

I think you will see a trend, not away from credit insured receivables, but more towards a lower percentage insured in future. And that's a pricing issue which will determine whether you self-insure.

Over the past few years we have seen a lot of consolidation in the channel and in the IT space. Do see that continuing? Is Bell looking to accessorise its portfolio further?
Yes. You have to be a buyer or a seller. It has been going on since Adam and Eve. Our customers are consolidating, our competitors are consolidating, and so are we. We'll continue to look and we'll make a couple of announcements soon about acquisitions in Latin America.

We are looking at Europe and the UK but it would have to be something compatible with what we do and bring something unique to our enterprise storage solutions business. There are some companies available and some of them are good companies. We'll continue to keep an eye open.

Do you see the market in general picking up next quarter?
The longer we are in the downturn the closer we are to the upturn. We have to be getting very close.