Growth Engine


Our top 500 solution providers rev up revenue 26.4%


Solution providers grew at a heady 24.3 percent clip in 2007, despite slow nationwide job creation in business overall, coupled with manufacturing reports that seem to indicate little to no growth in many sectors.

All told, the 2008 VARBusiness 500 is worth $377.76 billion. That's a bit larger than the GDP of Saudi Arabia. Another way to picture that: Roughly 375 NFL stadiums can be built for that amount of money, although there'd be far more stadiums than teams.

This year, 113 companies debut on the list, the same number as in 2007. Mergers and acquisitions affect the list every year, taking away perhaps from one market area but adding to another. Finally, companies that were started up only a few years ago are now coming of age and making some serious revenue. The list continues to evolve and is as vibrant as ever; despite all the recent economic turmoil, the threshold to enter the list has risen--our 500th company is a $32.6 million concern.

Last year, we debuted our separate list for vendor services divisions, such as IBM Global Services, Cisco Services and Xerox Services. Those vendors that offer system integration, IT training, fix-and-repair services are included within that listing. In 2007, VARBusiness included 25 companies; in 2008, we offer a Top 40.

EDS took the top spot for the second consecutive year, leading the pack with $22.1 billion in revenue. Though it's increasingly tougher to post increases at such high sales rates, the technology-services company saw a better than 4 percent rate of growth. EDS president Ron Rittenmeyer took on the role of CEO on Sept. 1; see our interview with Rittenmeyer on page 24. Rittenmeyer replaced Michael Jordan, who was brought in to lead a turnaround at the company in 2003.

The collective growth of this year's top solution providers outpaced last year's significantly. In 2007, the list's solution providers increased revenue by 18.6 percent and the 500th company recorded revenue of $24 million. This year's revenue growth is nearly six points greater, and the last VAR on the list reported sales of $33.4 million--slightly less than a 40 percent jump.

Why are solution providers doing so well in the face of a lackluster economy? A number of VARs say it's because they offer cost-effective ways for clients to stretch their IT budget dollars. Return on investment is increasingly important, especially when times are tough. "We're starting to see less focus on technology and more on operational efficiencies," said Robert Venero, CEO of Future Tech (2008 VARBusiness 500 No. 337) Holbrook, N.Y. "There's no question that ROI is going to be one of the strongest drivers in '08."

Of course, the largest system integrators and consultants contribute a great deal to the $377.76 billion figure. The Billion-Dollar Club has 64 members, up from 57 last year. Those elite VARs make up $275.67 billion in combined revenue--73 percent of the total VARBusiness 500. Of those solution providers, 56 increased revenue year-over-year, an increasingly difficult feat to achieve as companies grow.

That leaves more than a quarter of the list's revenue to be made up by the remaining 436 solution providers. The 113 newcomers pulled their weight, contributing $32.67 billion to the overall figure, with an average annual revenue of $289.07 million.

Most Advantageous Vendors
Vendors That Help The Bottom Line
VENDOR VENDOR ADVANTAGE* YES, AVG. REVENUE NO. AVG. REVENUE
Buffalo Technology 307.70% $2,787,687,308 $683,787,093

Gateway

253.90% $2,460,352,177 $695,308,205

BMC Software

240.00% $2,364,123,591 $695,239,887

SAP

227.50% $2,142,260,991 $654,126,559

Alcatel (Lucent Technologies)

205.20% $2,067,636,802 $677,470,381
BEA 168.00% $1,753,487,351 $654,183,771
Western Digital 104.70% $1,432,265,456 $699,640,179
Fujitsu 96.90% $1,358,274,816 $689,810,165

Motorola (formerly Symbol Technologies)

67.30% $1,186,867,358 $709,491,631
Infocus 58.80% $1,135,478,814 $714,948,821
* AVERAGE REVENUE OF VARs REPRESENTING THE VENDOR VS. THAT OF VARs NOT REPRESENTING THE VENDOR.
SOURCE: 2008 VARBUSINESS 500
BASE: 500 OF THE LARGEST IT SOLUTION PROVIDERS IN NORTH AMERICA

Next: Mergers And Acquistions

As always, a number of significant mergers and acquisitions made their mark on the VARBusiness 500. Agilysys (2008 VARBusiness 500 No. 68) was the most active buyer, acquiring InfoGenesis, Stack Computer and Innovative in acquisitions worth in excess of $200 million, and selling KeyLink for $485 million. Capgemini (2008 VARBusiness 500 No. 6) scored the largest deal, reeling in Kanbay for a cool $1.25 billion. Logicalis and Incentra were also players, each bringing two companies into their respective families last year.

BlueWater Communications (VARBusiness 500 No. 467) was the fastest-growing company on our list, with revenue that increased 1942.3 percent. It is the first year on the list for the New York-based VAR. The 2-year-old solution provider, founded by former Dimension Data CEO Bob Cagnazzi and other Dimension Data alumni, focuses on lifecycle applications and helps clients build unified communications strategies.

"There was a real need in the marketplace to deliver solutions that unified communications," Cagnazzi said. "There had been technical migrations but not business migrations. CIOs, COOs, CFOs said they had not seen business benefits, no total cost of ownership benefits."

ITT Defense (VARBusiness 500 No. 20) and DST Systems (VARBusiness 500 No. 70) both showed phenomenal growth of 220.7 percent and 220.5 percent. Other companies that grew at a greater-than-200-percent clip were Maximus (VARBusiness 500 No. 82), Verio (VARBusiness 500 No. 116), Megapath Networks (VARBusiness 500 No. 199) and Visionary Integration Professionals (VARBusiness 500 No. 217). In all, these fast-growing VARs brought in $21.74 billion, and grew at an astounding 68.4 percent.

Companies buy from the VARBusiness 500 for various reasons: These solution providers have good reputations, they carry well-known and trusted brands and offer high-quality service at a reasonable price. The idea that customers are engaging with VARs for projects that show a concrete return on investment is evident, too, in the top technologies solution providers are recommending. Bread-and-butter technologies, such as backup and recovery, hubs, switches and routers, and enterprise storage are top of mind, with basic security and midrange servers close behind.

Of all the technologies integrators see growing in importance, VARs say storage solutions are tops, with virtualization software coming in a close second. According to D&B's Global Database, virtualization is a potential $10 billion market. As more companies face compliance regulations and exploding data capacity requirements, virtualization will grow in importance to solution providers, particularly as customers do not have the in-house technical expertise to build what they require.

"Business projects that are specifically geared toward solving problems are the solutions that are more apt to be approved," said Joe Mertens, president of Sirius Computer Solutions. "Other, more general ones will be pushed out further."

Although all vendors supported by the channel contribute to VARs' profits, certain manufacturers stand out. In particular, Buffalo Technology, BMC Software, SAP and Western Digital were among the vendors that VARs credited with attracting customers. Interestingly, Apple and Dell were in the top 20 list of vendors mentioned by VARs.

Overall, the 2008 VARBusiness 500 represents the very finest of what the channel has to offer. It reflects the diversity of solution providers--those that are public and those that are private and perhaps family-owned; those that cater to specific technologies and others that take a more broad-based approach; and those that embrace enterprises as well as competitors that specialize in catering to small and midsize businesses.

Next: 2008 VARBusiness Methodology

2008 VARBUSINESS 500 METHODOLOGY

The VARBusiness 500 is the definitive listing of the largest IT solution providers, system integrators, IT consultants and services companies in North America, as measured by gross worldwide revenue.

Rankings were determined by 2007 fiscal year gross revenue generated by the sale of IT goods (hardware and software), software licensing, custom software sales, professional services and managed services.

The VARBusiness team reviewed the financial performance of hundreds of companies. Private and public companies are invited to participate. Applications are vetted and cross-checked against multiple independent sources, including "Hoovers" and "Selectory."

This issue comprises top-line analysis of the VARBusiness 500 companies and industry trends. Find out more about the VARBusiness 500 online at www.channelweb.com.