Twenty-five Datrontech staff will not be making the move this week to the distributor?s new Basingstoke headquarters. They have been made redundant, following a major reorganisation at the components distributor.
As part of an efficiency drive, Datrontech is moving its Aldershot and Guildford offices to Basingstoke. It is also moving Peripherique, its retail arm, into the new offices. Data Connectivity, the company?s high-end networking subsidiary, will join the Basingstoke crew within the next 12 months and Datrontech will retain its Aldershot warehouse.
Mark Mulford, Datrontech managing director, said the staff cull was a ?mature management decision ? but that doesn?t make it any easier?. Originally, Mulford had hoped to realign the jobs, but sluggish trading put paid to that notion. IDC put the company?s first quarter growth at one per cent; Context has come in slightly higher, but it has been pretty tough all around.
Mulford said the slow-down had particularly affected Datrontech?s core business supplying components to the systems building market. In particular, he noted flat trading for Intel, a major franchise.
A booming grey market is also hurting Datrontech, which claims to be the UK?s biggest supplier of Microsoft and Intel to the OEM trade.
All in all, it has been a disappointing few weeks for the Aldershot distributor. The re-organisation follows hot on the heels of a profits warning issued by Datrontech last month. But, true to form, Mulford seems convinced that the glitch is only temporary.
Datrontech is currently out of favour with City fund managers. Following the profit warning, the company is trading on a ratio of 6:8 ? lower than that of Northamber, the traditional ugly duckling of IT distribution stocks. More tellingly, its current market cap is #43 million, against #132.5 million for Ideal Hardware ? a company that is a bit smaller and a bit more profitable.
This is because Datrontech is paying the price for the vola- tility of the memory market. And institutional fund managers prefer to avoid putting their pension money into volatile markets.
However, the City?s reaction to Datrontech?s profit warning looks a little overdone. Memory is now a minority activity, besides, the company has ridden the memory roller-coaster quite effectively. Last year, Datrontech increased the value of memory sales by 40 per cent, against a backdrop of 90 per cent fall in unit prices.
Since making its debut on the stock market, Datrontech has spread its risk by acquiring a handful of high-margin, value-added businesses. These include Data Connectivity, Sum- mit Peripherals and Portable Add-Ons. The distributor can also expect good growth from its technical training business, acquired through the purchase of Xenon for #3.5 million earlier this year.
There are cross-overs, in particular between Xenon Training and Data Connectivity. And Mulford is of the opinion that there may be opportunities to market Xenon?s warranty up-lift business through its sys- tems builders.
But there is less crossover with the acquisition of RD Trading, acquired for about #5 million in January. The price tag, which includes a #1.85 million earn-out, seems very expensive indeed for an IT recycling company turning over #6 million a year.
So far, 1997 has been a year of consolidation for Datrontech. In January, Steve King, Datrontech CEO, told PC Dealer that the distributor needed to reduce areas of duplication, such as logistics. Apparently, it now has seven warehouses as a result of its buying spree. This sounds like five or six too many.
The group is also building a volume-driven distribution engine, and it clearly has the capacity to run all back-office operations from Basingstoke. But Mulford said the company has no plans to change its devolved structure.
He talks in terms of brand equity within the subsidiaries; of entrepreneurial owners-turned-managers who ply their niche skills. Which is fair enough, but there seems to be little specific business reason why each subsidiary should, for instance, run its own marketing or credit control.
It may suit Datrontech to present itself as a collection of niche IT distribution companies for the time being. But in the long term, it would clearly be more advantageous, and make more business sense, for the company to present a more cohesive identity to the world.
Datrontech operates under eight different company names in the UK, and two or three more in Europe. Brand equity held by the subsidiaries is not reflected at group level, where it would do the most good.
Datrontech will want to buy more companies, and that means issuing more paper. But currently its shares are in the doldrums. This reflects Datrontech?s presentation skills more than its business fundamentals. The company?s shares look undervalued.
A strong and unified corporate identity has helped Ideal Hardware to foster its relationships with the City ? although 10 years of unblemished organic sales and profit growth has helped, too.
Datrontech should now follow suit, adopting a single brand for all its distribution activities. Out with Data Connectivity and in with Datrontech Networking. Out with Summit Peripherals and in with Datrontech Storage.
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