ARC Networking: Prop Up Poor Profit Margins

The Dell'Oro Group expects port shipments of Gigabit Ethernet switches to rise more than 30 percent this year, but per-port pricing is expected to fall 5 percent to 10 percent each quarter. "Vendors are shipping more products than ever, but that hasn't led to more revenue or greater profits," says Greg Collins, a director at the Portola Valley, Calif., research firm.

As such, the market for networking hardware has shifted. No longer can solution providers make a living installing LAN switches and routers. "Vendors offer customers 30 to 40 percent discounts on routers and switches, which leaves their partners with little or no profit margins," says Mike Theisen, executive vice president for convergent services at Norstan, Minneapolis.

So solution providers must identify other ways to generate profit. "An integrator can't stay in business simply by moving more boxes; it has to include some type of value-added service element in each sale," says Bill Smeltzer, vice president of sales at URS Information Systems, Wilmington, Mass.

Solution providers can help with network design and follow up with implementation services. At Synercomm, New Berlin, Wis., security and network management have been two areas of growth.

Voice equipment also is creating new opportunities for solution providers. "We anticipate that a lot of our future growth will come from unified messaging sales," says Jon Wiese, president of Tulsa, Okla.-based Xeta Technologies.