Server 2003 Upgrades Help D&H End Year With Double-Digit Sales Growth

Powered by a whopping 38 percent increase in server sales, in part from the Windows Server 2003 upgrade cycle, D&H Distributing ended the year with a 13.3 percent increase in sales.

For the six-month period ended Oct. 31, the Harrisburg, Pa., SMB distribution stalwart reported that sales soared to more than $2 billion. For calendar 2015, D&H expects to post annual sales of more than $3.5 billion.

"VARs are trying to get ahead of the Windows Server 2003 upgrade opportunity," said D&H Vice President of Sales Jeff Davis, commenting on the robust sales growth. "We are seeing strong server sales leading up to the end of support from Microsoft for Server 2003.

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Microsoft has established a firm July 2015 date to end technical support in what it is calling end of service for Windows Server 2003. Whereas the end-of-life support for Windows XP, effective April 8, 2014, resulted in many customers rushing after the fact to upgrade systems, Davis said the Server 2003 upgrade opportunity has started early.

D&H, in fact, kicked off a major campaign in the spring aimed at helping its solution provider partners capture the Microsoft Windows Server 2003 end-of-service upgrade opportunity. "We have done a couple of solution labs to get customers aligned with the server refresh," said Davis.

That technical support termination by Microsoft is expected to spark a race by the vast majority of the 2.3 million customers still running Windows Server 2003 to upgrade to a new server infrastructure. Some analysts estimate that as much as 65 percent of the Windows Server 2003 installed base is in small-business environments.

The sharp server sales growth came with strong sales from white-box server players and Lenovo-based systems, said Davis. Hewlett-Packard Enterprise Group servers, which D&H received authorization to sell at the end of October, is expected to play a big role in Server 2003 upgrade sales in 2015, said Davis. "We really feel we have all the bases covered with Server 2003, whether it is branded or unbranded solutions," he said.

NEXT: D&H Expects Robust Sales Growth In 2015 With Server 2003 Upgrades

Davis said he expects Server 2003 upgrades to result in a sharp uptick in sales for the first half of 2015. Even after Microsoft pulls support for Windows Server 2003, Davis expects strong server upgrade sales to continue. "Typically, in SMB the tail is longer on refreshes," he said. "I expect that to be the case here as well."

Mark Pontius, the CEO of Compass Network Group, one of the top dental technology integrators in the country based in Lancaster, Pa., which buys products from D&H, said he saw a number of customers upgrading workstations and refreshing servers at the same time ahead of the Server 2003 upgrade cycle. "Some customers that replaced XP systems also replaced Server 2003 systems at the same time," he said.

Pontius expects his 2014 sales to be up 25 percent compared with 2013.

Although white-box server system sales were strong in 2014, Davis said he foresees a much bigger increase in branded server sales for 2015. Besides robust server sales, Davis said D&H saw an across-the-board, robust double-digit increase in systems, including a 14 percent increase in notebooks and an 11 percent increase in desktops sales for the period.

For the period, D&H also saw a 21 percent increase in tablet sales; 19 percent increase in monitor sales; 16 percent increase in imaging sales; 13 percent increase in storage sales; 13 percent increase in component sales; 12 percent increase in software/licensing sales; and a 10 percent increase in networking sales.

Among the strong vendor performers were HP, Cisco, Lenovo, Microsoft, Western Digital and Seagate, said Davis.

D&H has experienced robust retail sales growth of consumer electronics products and appliances, said Davis."The retail holiday shopping season is shaping up to be pretty good," he said. "Black Friday used to be just Friday. Now it is the back of November."

In addition, D&H has seen an increase in SMB solution providers becoming more sophisticated and moving up from the proconsumer market to the midmarket, said Davis.

"The (SMB) channel is getting more sophisticated in the types of solutions they are bringing to market," he said. "As VARs try to blend the Bring-Your-Own-Devices with what you need to run the business, it requires a lot of complex solutions. The SMB customer is in tune to building that out."