As if they needed more stress, organizations are facing evolving and increasingly stringent compliance regulations from the Payment Card Industry, as well as Sarbanes-Oxley, HIPAA and others. Here are a few security compliance products that can make the audit process less excruciating.
Here are 10 of the distributor's hottest new offerings winning over solution providers.
New smartphones from Sony, Motorola and the first-ever Twitter-only mobile device -- the TwitterPeek -- headline a busy week for handset makers as the holiday shopping season heats up.
The results have ramifications for many vendors that use the ARC as a tool to change products, programs or support because it is hard to tell whether the changes we see in this year's study will be permanent. Many consumers have altered their buying habits, but have VARs? Some resellers said the dynamics of the VAR-vendor relationship have been forever changed.
Accolades go to this year's impressive group of winners but also to companies that showed gains and promise. One of those is Symantec, which had a dramatic improvement in year-over-year scores in both the security and storage categories. Symantec stayed "on message," as the saying goes, while aggressively courting partners who had become disillusioned with the brand. On the networking front, Juniper continued to post strong scores in a category once dominated by Cisco and narrowly missed edging out John Chambers' organization. CA's performance was notable in that its storage unit posted gains, but the promising changes it has made to its security products and channel have yet to take hold.
The proposed purchases of IT services companies by Dell and Xerox may be good news for those hardware firms, but every VAR should be concerned. As many of you know by now, Xerox has made a $6.4 billion bid for VAR500 firm Affiliated Computer Services while Dell is paying $3.9 billion for Perot Systems. The moves are clearly signs that manufacturers do not believe product sales will propel their growth in the next few years. You can expect more acquisitions of services companies in the coming months, as they are attractive targets. This sets the stage for a major resurgence of channel conflict in 2010 and beyond as vendors grow their services revenue while attempting to manage partners who are more services-oriented than ever. Professional and consulting services have been the driving force behind the stability and growth of VAR organizations this year. The acquisition of ACS will triple Xerox's services revenue, while Perot will bring $2.8 billion in services revenue to Dell with strength in verticals such as health care and government. These deals will no doubt benefit companies highly dependent on commodity hardware while putting mounting pressure on their channel executives to manage conflict.
Xerox will have to explain how 74,000 newly added ACS professionals who support thousands of large clients across dozens of vertical markets won't interfere with their business. Managing a huge services arm and partner network is no easy task. Just ask IBM, which has struggled with the issue for years. As HP expands its services business, it will be forced to spend more time managing conflict as well but has thus far avoided any major problems.
From a channel perspective, the company is riding high based on the results of our 2009 Annual Report Card survey in which channel partners rated Fortinet tops in the network security hardware category based on their experience with the FortiGate product and channel program and support. The company has had a steady climb in the ARC, rising from seventh place in 2007 to third last year and then taking first against rivals Cisco, Juniper, SonicWall and Trend Micro this year. I am not sure if there is any correlation between ARC results and stock performance, but Fortinet's investment bankers -- which include Morgan Stanley and J.P. Morgan -- should be using some of the findings to impress investors, especially since partners gave it a score of 93 in revenue and profit potential.
Fortinet, which claims to have 14 percent market share in the UTM appliance market, is sensing some early momentum in the IPO market and has decided to raise millions for what is known in the IPO world as "working capital" and other general corporate purposes. In other words, the company wants to fund new projects, products or acquisitions.
While Fortinet has been on a bit of tear lately, it is interesting to note that its services business has been driving growth. In 2008, product and services sales surged 37 percent to $211.8 million from $155.5 million. Overall, its fortunes turned around in 2008 when it posted a profit of $7.4 million vs. a huge $21.8 million loss in 2007. As of June, the company had shipped some 450,000 appliances to 5,000 channel partners and 75,000 customers worldwide, the prospectus states.
Still, the revenue mix changed in the first six months of 2009 as product sales declined 2 percent to $43.8 million and services rose 36 percent to $65 million. The company's revenue shift also impacted its first-half profit picture as it produced an $8.35 million profit vs. a loss of $5.1 million in the first half of 2008. The security company's services revenue comes from security subscription services updates along with Internet and phone-based support. Yet Fortinet also disclosed it generates a small portion of its revenue from professional services. The specter of a growing services division is an area of concern for current and future Fortinet partners, who will have to weigh any channel conflict against the sales opportunity. Fortinet, like most successful software firms, does have incredibly high gross margins -- 73 percent for the first half -- and has generated $136 million in cash thus far and no debt.
While they are not business celebrities now, you will be hearing more about Fortinet founders Ken Xie and Michael Xie. Together they hold 32.5 percent of the pre-IPO and those holdings will no doubt turn them in to multimillionaires once the offering is completed. An interesting note about 46-year-old Ken Xie. He was the founder of NetScreen Technologies, which many of you may remember was acquired by Juniper and was the impetus behind the company's push into the mainstream channel. Michael worked with him at NetScreen, so both of these engineers have the Midas touch. At press time, Fortinet had not yet set a price for its shares.
BACKTALK: Comment on this column at community.crn. com. Contact Senior Vice President/Editorial Director Robert C. DeMarzo at robert.demarzo@ec.ubm.com.
Ingram Micro posted a second-quarter sales decline of 25 percent accompanied by a statement that the massive distributor plans to get more aggressive driving sales in the second half. I am not exactly sure how to interpret that, but usually when a distributor uses the word "aggressive" it implies price cutting.
In North America, Ingram Micro sales declined 22 percent. In the first quarter, the company recorded a 16 percent drop in North America sales, so the pace of the decline accelerated through the quarter for a region that accounts for some 41 percent of Ingram's sales. Analysts at investment firm Raymond James were expecting to see the first signs of stability in the second quarter "albeit at a low level" and were expecting a 15.5 percent decline in IT shipments through global distribution channels in the second quarter. It is certainly not a pretty picture. Sequentially, Ingram's sales slipped to $2.74 billion from $2.77 billion. Ingram's CEO Greg Spierkel addressed the financial results stating that Ingram does not anticipate an economic rebound in the near term. "We now plan to place a greater emphasis on securing incremental sales," he said. No doubt the competition between Ingram and its fiercest rivals Tech Data and Synnex is bound to heat up in the coming weeks.
Ingram has a huge hold on the market for commodity products such as displays, printers, notebooks and networking gear, which show few signs of a rebound. But if the company gets more aggressive on the sales side, VARs and their customers could benefit from some good deals. Whether the sales push, details of which are somewhat sparse up to this point, will really stimulate sales is anyone's guess. In Raymond James' assessment of the second quarter, the number-crunchers and analysts at the Atlanta-based investment firm expect IT spending to recover when corporate profits rebound and the availability of credit improves. They see positive signs now that credit is becoming less constrained while corporate profits are near historical lows. So perhaps an uptick in IT spending is on the way in a couple of quarters. But don't open the champagne just yet. Keep it on ice, though, because if you study the correlation between IT spending and corporate profits/credit availability you will see a strong relationship.
After squeezing out a 0.2 percent gain in the third quarter of 2008, distribution shipments in North America headed south in the fourth quarter (down 8.1 percent) and down nearly 16 percent in the first quarter with an estimate of another 16 percent decline in the second quarter. You have to look back a long way to find three consecutive quarters of declining sales.
PC Connection, which, unlike Ingram, sells directly to customers, said second-quarter sales were off 16 percent but up 16 percent over the first quarter. PC Connection was willing to sacrifice margin to prop up sales in the quarter as it struggled with weak demand. On the product front, PC Connection watched notebooks and PDAs plummet by 22 percent, with desktop computers and servers declining some 13 percent. The company, which posted sales of $377 million for the quarter, recorded a loss of $6.45 million vs. a profit of $5.08 million a year earlier due to a special charge.
Without the charge, second-quarter net income would have plunged to $1.1 million vs. $5.1 million a year ago.
So here is the good news inside PC Connection's results. While its SMB business unit was down 25 percent with its large account segment off 14 percent, its government and education business unit was up 6.1 percent to $90 million. So much like the silver lining in IBM's recent earnings report, public-sector sales were also the bright spot for PC Connection. Company chairman and CEO Patricia Gallup had at least that news to cheer about. But she is also managing a company that is increasing its software business. Sales of software emerged as the company's largest product category in the quarter aided by several large federal deals.
BACKTALK: Comment on this column at community.crn. com. Contact Senior Vice President/Editorial Director Robert C. DeMarzo at rdemarzo@everythingchannel.com.
Let's start with a comment from a veteran solution provider who recently observed that his peers were either complaining about how poor business is or how they were gaining ground on the competition because of strong results. Since we just wrapped up our research for the fastest-growing solution providers as part of our Fast Growth 100 list, we can report many VARs are having a strong year despite the economy. But this solution provider's comment about the bifurcation of the channel is spot-on as we don't hear many VARs talk of being flat. It seems VARs are either having an up or down year, with few in the middle.
The First Wave of second-quarter earnings has me scratching my head. Intel and IBM give the market a boost with their financials on two different fronts while Dell continues to struggle. Intel sees a strong consumer market while IBM proves it is the master of managing margins. But neither report gave me much hope for a rebound in the business computing marketplace. If anything, IBM's results sent a mixed message. Its hardware business was down 23 percent from a year earlier while software was off 6 percent. Its two services business were down 10 percent each but it managed to post only a 1 percent drop in net income and boost earnings per share. Chairman Sam Palmisano's team did a masterful job of managing expenses. But there was not much to cheer about if you were an IBM partner. Insiders say IBM is taking share from competitors, a claim we haven't yet confirmed.
One thing that came out of its quarterly briefing was word it is selling more high-end software solutions directly to customers -- not good news for the channel -- and that its huge public-sector business run by Bob Samson is posting strong results -- very good news for partners. If Samson ever retires from IBM, the company should petition New York City for a ticker-tape parade.
Speaking of the public sector, our recent XChange Government Integrator event held in Washington, D.C., was a vacation from the Great Recession. D.C. is one hot town thanks to President Obama and the government's spending spree. During that conference we gained insight into just how robust the public-sector IT market is right now. The highlight of the conference was the Public Sector Channel Executive of the Year Award we presented to Oracle's Dennis Morgan, who has built his career serving public-sector solution providers and customers. He is not only one of the most visible and well-known executives in and outside of the Beltway but one of the most trusted. He has forgotten more about public sector than most of us will know in a lifetime. A well-deserved honor; congrats to Morgan.
Outside of public sector, there are some other executives making some gains. Most notable among them is Fernando Quintero, Americas Channel Chief of McAfee. After a few years of channel disappointments and listlessness at the security vendor, Quintero is leading the company's charge with an impressive plan to re-engage partners, broaden the company's channel and sweeten terms. On the channel side, Symantec's Randy Cochran has slapped McAfee around for some time now, but he is in for a good fight in the coming months. Another executive to watch is the affable, indefatigable Stewart Krentzman of Oki Data Americas. Krentzman is seizing the opportunity to gain share and loyalty in the channel. He was the driving force behind Oki's impressive managed print services program launched earlier this month. The program allows even the most reluctant of VARs a chance to get into the managed print services market with a bundle called PageStart. It's worth a look.
BackTalk: Please log on to Channelweb Connect and comment on my column or send me an e-mail at rdemarzo@ everythingchannel.com and I will send you a link to register.
Partners heard the following: "We are competing with HP. Period. End. It is competition," said Wendy Bahr, Cisco's senior vice president of U.S. and Canada channels, adding that partners will be the ones who ultimately decide which is better. Rob Lloyd, head of worldwide sales, said Cisco is going to be more aggressive because it's rolled with the punches long enough.
Those are fighting words from a company that has enjoyed dominant market share in the networking arena for years. Chambers is fond of including a chart in his presentations comparing Cisco's market value to that of its hapless competitive set, and it is embarrassing for those rivals. But the chart looks different if you compare Cisco to HP. While Cisco does have an edge in stock market valuation to HP -- $110 billion vs. $89 billion -- its sales are substantially smaller as HP has a $117 billion run rate compared with Cisco, which is heading toward $40 billion. That certainly could change overnight if Chambers were to set his sights on an acquisition that would further push Cisco into the server or storage markets. After all, the main reason these two companies are squaring off is because of Cisco's push into those markets, where HP has made a good living. HP has also gained ground in the core switching and routing market, with ProCurve emerging as a key alternative to Cisco.
But where does this all put partners? Caught, between Wendy Bahr and Adrian Jones of HP because they are going to start forcing partners to choose sides. They will be motivated by market share, compensation plans and strategic goals, which may just conflict with a Cisco or HP partner's focus on what is best for the customer. Watch for continued coverage in print and online on Channelweb.com.
While I was flying in to Washington, D.C., for our XChange Government Integrator event, I read a Wall Street Journal editorial titled "Boom Town," which portrayed our nation's capital as awash in good times. Business is brisk, unemployment is well below national averages and you can't get a table at the most popular restaurants. It was a great setup for our event, which focused on consultants and integrators selling into public sector, be it federal, state and local, health care or education. Some of the stimulus money is already flowing and integrators and consultants (they don't like to be called "VARs" in the Beltway) are starting to reap the benefits along with their vendor partners. It was an amazingly upbeat event. Integrators were smiling, vendors were in search of new partners, charts flashed with huge opportunities and analysts had pockets full of cash from clients paying them to make sense of it all. Makes you want to pick up and move to Washington at least through 2010 because that is when everyone thinks public sector will cool down. For players in the game, they are in the right space at the right time.
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