Managed Services, Recycling Revive Declining PC Sales

US itek lives in a world of declining PC sales. Yet business has never been better for the Buffalo, N.Y., solution provider and system builder, whose early foray into managed services is paying off handsomely.

The eight-year-old company, which derived about half of its $2.5 million in revenue last year from product sales and the other half from services, was in the red five years ago and struggling with a declining PC building business. But now, it is enjoying double-digit profit growth.

"If you look over the past three years, revenue has been flat or going backward," said CEO Dave Stinner, who began his one-man system-building business while in college and now employs 14 people. "My profits are altogether another story. I plan on doubling my profit from what it was in 2006 to 2008."

While managed services has been driving profits, it was another initiative that qualified this small system builder as the top White-Hot Performer, with 2006 unit growth of 102 percent. About 80 percent of its 4,281 units were recycled units. While not exactly white boxes, they were customized.

US itek gets an inbound stream of between 8,000 and 10,000 old PCs per year, processes them and resells the better ones domestically and lower-end ones to international customers over the Web. The company will upgrade them to customer requirements. "I turned it into a build-to-order kind of thing," Stinner said.

The revenue is small, accounting for only 15 percent of his sales, but the margins are hard to beat. He may charge a school district $20 to take a system off their hands and then sell the system for as little as $20, making as much as he would off a low-end desktop, he said. One VAR customer repeatedly buys 100 such systems at a pop for an education market application. "He does something with Linux," Stinner said. "I don't know what he does."

Stinner said the refurbishing business is good because there are so few recyclers in New York, where recycling laws are getting tougher, and because most competitors are waste-disposal companies with little IT knowledge. His advantage is he understands asset management and the remarketing of the equipment. His refurbished unit sales were up 245 percent last year. "That business is cranking now," Stinner said.

But it is his managed-service offering that is driving profitability, as well as renewed revenue growth. A key ingredient for US itek's success: offering its managed-service clients free installation and labor on hardware and software, a compelling incentive that drives custom-system while bolstering managed service contracts.

"We really focus on services and the system building comes with it," Stinner said. "There isn't a business out there that doesn't need new SANs, new notebooks and new computers. A few years ago it was pretty grim."

Stinner spent a year developing his services offering using Level Platforms software and has an "all-you-can-eat" fixed price. Many of those customers used to buy Dell and CDW, but they're switching to US itek's systems. "It keeps my [hardware] profits up," he said.

Next: Grow Initiative