Strong Demand Reaps Healthy Margins

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The economy might be somewhat sluggish, but many IT solution providers are still reporting relatively healthy sales of IT products and services—and particularly strong demand for newer technologies such as virtualization and unified communications. Those are among the findings of Everything Channel's 2008 Profitability Study, a random query of nearly 300 solution providers on a variety of topics related to IT and profitability margins.

The survey data showed that channel revenue is spread across a broad range of technologies. When researchers weighted the average percentage of revenue from a technology by percentage of VARs in that technology, desktops, notebooks and entry-level servers were ranked first, with about 14 percent of revenue. Next came custom systems (10 percent), followed by wired networking infrastructure (6 percent), custom applications developed for proprietary solutions (6 percent), backup and recovery solutions (5 percent), printing and imaging (5 percent), small and medium business software suites (5 percent), basic security (5 percent), and wireless networking infrastructure (4 percent).

All but one of the technology categories—printing and imaging—are increasing revenue faster than U.S. gross domestic product (GDP), which grew about 5 percent in current dollars from 2006 to 2007. This indicates that solution providers, on the whole, are doing better than the national economy.

Don't Scrimp On Applications
Even in sluggish times, business customers need upgrades and maintenance on their existing systems. Some are also looking for ways to cut costs through technology initiatives. By that token, many solution providers who meet their needs are seeing increased business and better bottom lines.

Revenue is growing most quickly in the areas of virtualization, midrange servers and unified communications, according to the survey and other market indicators. Solution providers, on average, say total sales revenue for virtualization products and services increased 16 percent in 2007 compared with 2006.

Swanson said Delta Max's virtualization practice has grown at least 200 percent over the past year. "Our unified communications areas are growing also, but mainly as part of the overall effects of our main professional services practices," he said.

Revenue from sales of midrange servers and unified communications solutions rose 10 percent from 2006 to 2007, the survey showed. Other fast-growing technology practices include custom applications developed for proprietary solutions, business-class communications and connectivity services, and Linux-based solutions. In general, technologies that are more customized or newer are more likely to bring higher margins. For example, custom applications deliver higher margins than basic security.

The more complex applications, such as enterprise software suites and business intelligence (BI) deliver higher margins than commodity software products that are relatively easy to install. Newer technologies, such as Voice over IP (VoIP), virtualization and unified communications, also tend to carry higher margins.

Next: Custom-Made

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