Corporate VAR Morse saw its sales increase in the last quarter of 2003, but warned that it was earning less margin on deals.
In a trading update last week, the company posted turnover of £114m for its second quarter ended 31 December 2003, compared with £92m a year before.
Interim results will be announced on 25 February. Services revenues fell £1m on the same period in 2002 at £31m, while infrastructure sales grew by £23m to £83m.
"We are pleased with the increased level of activity," said Duncan McIntyre, Morse's chief executive. "As we begin to see a revival in our core markets it is usual that the early volume deals will be at reduced gross margins."
Anthony Miller, an analyst at Ovum Holway, said erosion of margins was industry-wide.
"This is most apparent in the channel because gross margins are more obvious," he said. "This isn't just a case of margins falling on hardware, but endemic margin erosion across the entire industry."
Rival VAR Computacenter, which issued a trading statement earlier this month, said its sales for the year ended 31 December 2003 had been hit by falls in the US dollar and in hardware prices.
But it saw services revenue grow steadily, particularly in the UK.
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