EMC Q1: Channel Now Over 50 Percent Of Sales, But No Impact On Margins


EMC's Goulden also said that first quarter 2013 revenue from the company's service provider program was up over 40 percent compared to the first quarter of 2012.

EMC Chairman and CEO Joe Tucci, when asked by financial analysts during the conference call about the importance of the channel to EMC, said that companies that fare best in the IT market are those that have a strong direct sales force that works in harmony with a growing and vibrant channel.

"At one point, you have to worry about your channel because it's in effect an extension of your selling capability," Tucci said. "And you have to worry about their profitability. And you have to worry about are they trained properly [and] are they providing value to customers. So all those things go into the mix. But we are incredibly committed. I couldn't be more committed to the channels than I am."

Tucci also brushed aside any concerns about how sales through indirect channels might impact EMC margins.

"If we can get the channel to invest [in EMC], the margins through the channel are quite good because, when you look at operating margins, you maybe get a little less gross margin, but you don't have as much selling cost because our direct sales says, 'I have a trusted partner. I'll turn this over to them and I'll go sell something else.' And when you get a channel that can do the lifting, it turns out positive and is actually net-margin neutral."

Tucci's comments are spot-on with what is happening in the market, Butler at ECS said.

Hewlett-Packard is ECS's most strategic partner primarily because HP has for over a decade touted the same message that Tucci is saying, Butler said.

"As a partner, I wouldn't be in business if I didn't bring benefits to my vendors," he said. "We increase sales in areas where they don't go. And we lower the cost of their sales. If we go to 100 sales opportunities and sell into 60 of them, the vendors don't pay the cost of visiting the other 40."

ECS's cost of sales is lower than EMC's cost, and EMC only pays ECS for the sales that it closes, Butler said.

"A lot of people see the channel as an incremental cost," he said. "It's not. It's a displaced cost at a lower price."

NEXT: EMC Reports Revenue, Non-GAAP Growth