What's Eating At VARs?

At an editorial roundtable at the VARBusiness 500 Conference and Awards in New York last month, Harvey Najim had a confession to make.

The president and CEO of San Antonio-based Sirius Computer Solutions (VARBusiness 500 No. 78)--and the recipient of VARBusiness' 2006 Lifetime Achievement Award--said he's been in the high-tech business for 20-plus years and has never seen a softer quarter than the past three months of this year, especially when it comes to hardware.

But he wasn't alone. Many of the other roundtable participants chimed in to corroborate Najim's assessment of the quarter. One of them was Jim Dixon, president and CEO of CompuCom Systems (No. 45), a Dallas-based systems integrator targeting enterprise accounts.

"I was wondering what was going on, if it was just us," Dixon said. "But then I started talking to other people and found out that it was an industrywide thing."

He's right, as evidenced by the results of our State of the Market Midyear survey, conducted in May. Of the 397 solution providers that participated, 39 percent said their sales for the first half of 2006 have fallen shy of expectations.

The $25 million question: What made hardware such a tough sell for VARs from April through June?

"People are worried about the war [in Iraq], the price of oil," said Chris Ferry, executive vice president of Technology Integration Group (No. 121), San Jose, Calif. "The stock market's doing terrible, and nobody wants to spend money."

But Najim thinks the channel is just caught in a customer-purchasing down cycle.

"At Sirius, we're hitting the depth of that curve in almost all [product] areas," he said. "Customers are becoming very smart purchasers too. They know when pricing rises and dips, and I wouldn't be surprised if we get a lot of end-of-quarter orders when the prices have been driven down."

So what's a VAR to do? The best advice, probably, is to ride out the storm. Don't be passive though. Watch your bottom lines, keep pushing into the services sector and continue to do what you've always done best: adding value to technology products by building end-to-end solutions.

MICHELE PEPE is the managing editor of VARBusiness and GovernmentVAR.