CRN's 50 Leading System Builders Enrich Their Product Mix
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The 10 White-Hot Performers featured in this special report represent those companies among the
CRN
50 Leading System Builders with the highest growth rates in systems built last year.
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They are a varied lot and include solution providers in medical and home-entertainment verticals, large system houses servicing vertical-market ISVs and solution providers, a storefront operator and several regional system builders supplying the robust education market. Alert Computing, our No. 1 White-Hot Performer, is a one-time Web design shop that now mostly builds servers in Sedona, Ariz., for small businesses and defense contractors.
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In their stories, you’ll find each of these companies has its own secret sauce for driving growth. They are packaging solutions, offering longer warranties, paying closer attention to marketing or integrating specialized systems and solutions. They do share one common ingredient: a focus on customer service, which has long been the strategic advantage of the custom-system channel.
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That is a strategy shared by all of the 50 Leading System Builders. Like the 10 White-Hot Performers, our third annual Leading System Builders list represents a broad cross section of the custom-system channel.
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The largest system builder on the list this year based on unit volume, Equus Computer Systems, Minneapolis, assembled more than 173,000 units in 2005, while the smallest, DTR Business Systems, Walnut, Calif., produced 385 systems, all servers.
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In February and March,
CRN
sent invitations to U.S.-based system builders of all types to participate in our Leading System Builders Survey. The requirements were that companies either build or brand systems and be willing to disclose and verify how many and what types of systems they construct each year. The list includes the 50 respondents with the highest volumes.
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While not a scientific sample, the survey does provide insight into how the custom-system channel is maturing along with the technology industry.
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The 50 Leading System Builders collectively built 718,815 systems in 2005, up 23 percent from the number of units they built the prior year.
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Perhaps more significant was that nearly one-third of those units comprised servers, storage, notebooks and various other non-desktop systems. Those categories all grew faster than desktops, collectively rising 50 percent over the prior year, indicating that system builders are continuing to enrich their mix of products and solutions.
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“You have to have some level of unique SKUs, and some of the more profitable system builders are the smaller guys that are focusing on unique SKUs—server SKUs,” said Joe Toste, vice president of marketing at Equus.
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For Equus, its unique value-add has more to do with its network of service partners and its ability to deliver ready-to-go business-class systems nationally through its 14 regional facilities. “We just happen to have a unique business model on a large scale,” Toste said.
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Equus’ acquisitions of Able Computers, VarSource and Tactical Business Services are evidence of continuing consolidation in the market. But getting big is not the only way to maintain profitability in this market. According to the 2006
CRN
Profitability Study, solution providers reported an average 22.2 percent gross margin on their custom-system sales.
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Toste said he’s heard similar numbers from Intel. “I can make 22 percent on servers. The challenge is to do that across all your products because gosh help you if you try to make those percentages on desktops,” he said.
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One area where system builders across the board were enriching their product mix last year was storage, according to the survey. While storage units accounted for only 2 percent of all units built, the category nearly doubled in volume over the prior year to more than 16,000 units.
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That was true for both large and small system builders in the survey. Jalil Mahini, owner of MicroNet Systems, which operates out of a shopping center storefront in the Chicago suburb of Niles, began making network- and direct-attached storage units after seeing a demonstration at a trade show.
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“Once I saw how it’s done, it was very simple,” Mahini said. “I make bigger margins by building my own and can still sell it for less. This year, storage has added a lot to my hardware sales.”
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Ace Computers, Arlington Heights, Ill., reported building 2,200 storage units last year, making it No. 1 among the 50 Leading System Builders in storage units. John Samborksi, vice president of Ace, said the company has been providing storage for years but it’s not something many systems builders have paid a lot of attention to until now.
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“Now Intel has really stepped up. What Intel is trying to do with storage is what they did with servers—come up with some really good building blocks,” he said.
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Servers were driving growth and profits for other system builders. Among the 50 Leading System Builders, servers accounted for about 13 percent of the units they built in 2005, up from about 10 percent the prior year.
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Alert Computing reported that 71 percent of the systems it built in 2005 were servers for small businesses and defense contractors. The company’s skyrocketing
sales made it the No. 1 White-Hot Performer in terms of growth among the
CRN
50 Leading System Builders.
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Taken together, the 50 Leading System Builders list and profiles of the White-Hot Performers deliver both a broad and up-close look at the multifaceted custom-system channel that is evolving with the industry.