It's a hard-knock life

Hardware has seen signs of serious wear and tear for years but clever VARs can still succeed. Fleur Doidge asks how they're nailing it

Rumours that managed services provider Calyx has returned to its hardware-reseller roots have turned out to be unfounded. However, as reported by CRN only in December, while the VAR is not turning away from managed services, it has confirmed that it is re-emphasising hardware as a key tool for ongoing success.

Steve Clark, Calyx's chief executive, told CRN that the company required an extra crowbar to lever itself into services deals. Approaching customers cold with a managed services proposition alone had not been as successful a strategy as hoped.

"Not many customers will completely outsource their IT to you if you have not first done a project with them," he explained. "You have to do something to gain their trust and confidence."

Can hardware really shore up a managed services sale? Hardware of some description will always be needed - if not by the same customers, for the same reasons - but, as every channel partner knows, traditional kit margins have been razor thin for decades now and show no signs of improving.

Jeremy Davies, director of analyst Context, agrees that not many are making money in mainstream hardware at the moment, apart from those OEMs with massive volumes on their side. And Context's PC analyst, Nausica Rosina, offers figures that suggest some growth is still possible through distribution - while not dramatic.

"Looking at revenue growth from western European data for FY2012, the overall picture was for three per cent growth across the hardware category - desktops, notebooks, workstations and tablets," she says.

"The main contributor to the growth is the tablet category, which saw its revenue share grow from 10.7 per cent to 21.6 per cent, eroding the notebooks category in 2012. Notebooks are, however, still the main source of revenue for vendors, at 58.6 per cent."

In the UK, hardware revenue rose 34 per cent, but again that is mostly due to tablets. But Rosina says that even though tablet competition is driving down prices, the PC sector will see revenue coming in from more sophisticated products, and perhaps even "a new trend" of PC de-consumerisation.

"The price bands for desktops and notebooks in the UK saw higher-end products growing, such as MacBooks and iMacs as well as the HP Elite 8200," Rosina says.

The latest research from IDC reflects a somewhat mixed picture. Global PC shipment volumes shrank 3.7 per cent in 2012, but the market watcher expects 2013 shipments to decline only 1.3 per cent in 2013, despite a Q4 collapse of 8.3 per cent in the previous year, partly affected by lower Windows 8 uptake in the holiday season and continued pressure from tablets. And sales of smartphones overtook those of PCs in early 2012.

Server sales rebound in Q4

Server sales, on the other hand, while registering a 1.5 per cent fall in shipments worldwide for the full year, rebounded in Q4. IDC's figures suggest that revenue rose 3.1 per cent in Q4 to $14.6bn (£9.8bn) - the first quarter to increase in the past five. Volume/x86 and high-end systems saw the most growth - rising 4.2 per cent and 6.4 per cent respectively - while mid-range systems fell 10.0 per cent.

Meanwhile, resellers such as Insight reported hardware sales growth of 22 per cent in revenue terms across EMEA last year in its Q1 ending March. Hardware sales comprised 42 per cent of its turnover in EMEA, up from 36 per cent in Q1 2011. How is one to account for this success?

Ashley Gatehouse, EMEA marketing director at Insight UK, claims its strength here lies in being vendor-agnostic and building strong "trusted adviser" relationships with customers. "This takes it above the usual ‘old school' transactional relationship that many resellers have. The market has moved on from the box-shifting model," he adds. "And hardware is critical to this."

He says it is enjoying hardware sales growth in tablets, servers, switches and business video as well as other traditional hardware areas. Insight tries to directly address customers' complex business issues - which often concern mobility, BYOD, the datacentre, unified communications or virtualisation.

"That is in addition to the usual hardware refreshes that organisations carry out from time to time," Gatehouse says.

"It is not so much a question of how Insight is going to continue selling hardware with a small margin - it's about how to offer real value to a client by delivering a technology-based solution combining all these elements."

Must try harder?

This is all reminiscent of the themes the channel has heard over and over in recent years. But can it really just be a case of "must try harder", and working to do exactly the same things, only better?

Gatehouse says the nuances are important here. "Hardware gives you the ability to have the conversation, to engage with your client," he confirms. "They are really excited if you can help them integrate something into their Microsoft Windows environment, and we then start to add services to it. Hardware is key."

Alan Haley, managing director of business and market development consultancy Europa Communications, throws even more light on the subject, and hastens to add that partnering is even more crucial in this environment - an area, he says, where many resellers remain weak - not least because typical channel salespeople remain locked in a box-shifting mentality.

"It has never really worked that well, and it never will," Haley says.

He notes that retraining and resourcing the right salespeople to perform continuous marketing, and who can cope with the newer, more complex world of solutions selling, has remained a struggle for many resellers and distributors - even though servers and storage, per se, have long been commoditised. But that is just what is needed, insists Haley, to grow hardware sales, and by extension other sources of revenue as well.

He agrees with Gatehouse that being vendor-agnostic and building solid, long-term relationships are primary tools and adds that resellers must learn to incorporate new kinds of hardware into their sales. And they must do so much faster, as the market continues to evolve. Hence the requirement for quality partners, especially for smaller players, to work on offerings together that put the customer front and centre and ramp up services delivery.

"There are opportunities where you [as a VAR] will do well," Haley says. "But I see changes to the products you sell, and if you rely on a single vendor, that is a dangerous strategy. If you want to keep your customers, you have to sell them what they want."

Customers too will change - the worlds of cloud, and software-defined everything, are just two trends seeing to that. The channel, for example, will increasingly sell to the channel, not the end-user company, when it comes to hardware, and that itself will require adaptability and forward focus, he adds.

This might sound straightforward enough, but Haley says few if any resellers are doing well in making the required changes to their businesses that will enable true solutions selling and that recognise the realities of the market so far. Has he hit the nail on the head?