D&H's Schwab: Servers, Voice, Video Are Big Opportunities

D&H Distributing reported revenue growth of 20 percent for the fiscal year ended April 30, according to the privately-held distributor. Michael Schwab, co-president of the Harrisburg, Pa.-based company, now in its 93rd year, spoke with CRN’s Scott Campbell about the last year, what solution providers can expect in the next 12 months, and where the opportunities will be found. The following are excerpts from the conversation.

D&H grew 20 percent in the last fiscal year, up from a 6-percent increase in the fiscal year ended in April 2009. Where did you guys grow?

It started through Q2, the fall, through Christmas and kept accelerating. We saw momentum build throughout the year.

We saw some early signals that business was picking up, that Windows 7 was launching and getting good reviews and getting good momentum. That [happened] while consumers were paying off debt and looking for jobs, what disposable income they did have was being spent on technology products. We didn’t see a significant drop off on notebooks and Netbooks and printers and desktops.

How did you adjust the business to prepare for a recovery?

We continued heavily in marketing, saying let’s drive the categories that had momentum. At the same time, if there’s going to be business investment two things had to happen. First, resellers are going to need more credit.

If they get the opportunity to close a sale, we don’t want to confine them by them not being able to acquire the products they need. The second thing we knew would happen is business spending would not dry up forever. Even though GDP was negative in the back half of 2009 and people had excess IT equipment, we knew there would be a moment tin time where that changed. That moment hit in early 2010 where businesses were spending again and investing in new technology that brings them greater productivity, security and mobility.

Where do you expect to see growth for the next year?

Forecasting for this year, servers are a big opportunity in the market, particularly in the SMB channel. We’re building out more technical expertise in that endeavor as well.

What vendors are you driving in that space?

We drive the Intel solution, the Intel Modular Server, and in the branded space Hewlett-Packard] and Lenovo.

Then looking at other vertical-market solutions that are driving increased technology spend, voice over IP solutions, unified communications and using the data network as center of a voice solution is gaining traction from small business up to Cisco’s Unified Communications technology.

Video looks like another strong application. It’s been at the consumer level through Web cams and in the enterprise through telepresence. But in the middle has been a gap and void. Cisco just acquired Tandberg, Logitech acquired Lifesize and I think you’ll see more movement in that space.

Next: How has your customer base changed over the last year? Did a lot of guys go out of business, or did the remaining folks get stronger?

There were two significant changes in the customer base over the last 18 months. Initially, we saw some attrition in the customer base. In the U.S., I read that of every 200 businesses, one went bankrupt between 2008 and ’09. It was pretty high attrition, but then as seven million more people became unemployed, we saw a huge influx of new accounts, new opportunities, where people who worked for tech companies and couldn’t find an equivalent job decided to become entrepreneurs on their own. We had a huge influx of new accounts.

How about the vendors? Did you see fewer manufacturers looking to partner with D&H as the economy worsened? Were there less companies innovating for you to choose from?

The bigger vendors definitely got stronger. No question. They used this opportunity to take market share. Which in turn hurt some of the small- to medium-size vendors in same category. But we never really saw a decrease in the amount of new innovative vendors that bring new alternate technologies to the marketplace. Companies that hit head-on with a unique implementation such as video or power over Ethernet. They continue to hit our radar. The only different thing we did was make sure those companies had viable financial support. It was more critical to make sure that was in place. We didn’t want our customers to support technology that wasn’t going to last.

Your annual reseller show in Hershey, Pa., is coming up in a couple of weeks. Can you give us a preview of some new vendors or technologies VARs might expect to see there?

It’s too early for that but I can tell you we will have whole focus on driving energy-efficient IT technologies. There will be a big callout around the products and vendors and solutions that are eco-friendly. We trickled that out at our West Coast show in California in February. That was very successful. Now we’ll take that to the next level, whether it’s packaging, power consumption, there’s something that each vendor should have from an environmental standpoint.

What else might VARs expect at the Hershey show?

There’s huge demand for the trainings we do at this show. We’re around the corner from Office 2010 launching in June. It’s perfect timing for the Hershey show. Cisco has a whole new line of SMB products, storage products, that we’ll feature some training on.

Overall, we’re very optimistic for the back half of the year, both from a vendor perspective and a reseller perspective. If I had to sum it up, we’re looking more at customer-value decision making. The decision making that we look at every day was are our decisions enhancing value we bring to our customers. That format allowed us to invest properly to drive customers’ business forward, which in turn helps us in our business for the long term.