System Builders On The Rise
Published for the Week Of July 19, 2004
mong custom-system builders, optimism is running high. A strong uptick in sales through the first half of this year has convinced more than a few system builders that good times are likely to keep rolling at least through 2005.
“We did $150 million in sales last year, and this year we see $180 million-plus and for 2005 we’re looking at $250 million,” said Frank Zhang, president of ZT Group International, Secaucus, N.J., which ranked No. 1 on the CRN Leading System Builders list, producing 20,870 systems a month last year.
For several system builders, including ZT Group, the recovery actually began in 2003. In our survey, nearly two-thirds of the respondents reported an increase in system unit sales over 2002, and the top 10 Fast-Growth Performers in the list all reported unit growth in excess of 40 percent or more.
As Patrick McNicholas, CEO of Maverick Computers, the No. 1 Fast-Growth Performer on the list, put it: “I thought if this is bad, I can’t wait until it gets good.”
What was driving their above-average growth in the still soft economy? In interviews with many of these rising system builders, the top answer was their ability to deliver superior service.
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“We look at our business as a service business, not a product business,” said Robert Schaffer, president of Source Micro, Randolph, N.J., the No. 2 Fast-Growth Performer.
Service, of course, has long been the hallmark of the custom-system channel. That said, system builders most frequently cited education as a key growth market last year.
Custom systems are coming on strong in the education market, said Greg Masingill, vice president of sales and marketing at Seneca Data Distributors, North Syracuse, N.Y., whose system sales to the VAR channel were 22 percent in 2003. “Each school system is unique, and you need to be flexible,” he said. “And tier-one vendors are not flexible.”
Other system builders were tapping into the consumer market for growth. Falcon Northwest, Medford, Ore., targeted the high-end gaming market, where custom is cool and technological change still spurs sales. ZT Group, meanwhile, sustained its 34 percent growth by tapping into big retailers and looking toward media center PCs as a big growth area.
That isn’t in the game plan for the majority of custom-system builders targeting business, government and education markets. But expanded product lines are. And servers, notebooks and storage appliances are opening up new areas of growth, the survey indicated.
Nearly all of the system builders were building servers in 2003 and unit sales were up 63 percent, on average, among all the respondents. Interestingly enough, the next fastest-growing area was storage devices, up 47 percent on a unit basis, although storage still comprised a tiny 2 percent of all units sold and less than half reported storage among their product lines. But the trend is emerging.
Seneca Data is currently building about 10 network-attached storage units a month, up from five units last year and none the year before, and the company is finding the market ready.
“We’ve been having great success the last three months,” Masingill said, adding: “The profits are sometimes as good or better than the server market.”
Custom notebook sales, which only began to emerge in the channel last year, could also have an impact. “What we’re seeing is a lot more support from overseas, and that’s made a huge difference,” Schaffer said. “We’re seeing a huge increase in notebook sales.”