They say the scenery only changes for the lead dog. If that's so, then IBM Global Services (IGS) VB1 sees only a bright, infinite vista to conquer stretching off to the horizon. While the rest are chasing someone else's tail.
Yes, each and every company on the 2004 VARBusiness 500, this magazine's exclusive research package that charts the results of North America's top solution providers during 2003, deserves credit for managing and executing efficiently and creatively in an increasingly competitive arena. But if you bottom-line it--and we do--there's no getting around the fact that Armonk, N.Y.-based IGS leads the pack... again. For the ninth year in a row, IGS paced the industry, this time with an authoritative $42.6 billion in sales. That's a 17.16 percent increase over the previous year.
Perhaps more important, IGS continues to increase its dominance over, and distance from, North America's second-largest solution provider, EDS VB2. Last year, IGS' lead over the Plano, Texas-based integrator was already close to a hearty $15 billion. This year, IGS has increased that lead to an astounding $21.1 billion. That's right--IGS is now nearly twice as large as its closet competitor, and has gained more than 25 percent on its lead.
EDS, despite its challenging year, still saw sales grow 6.97 percent and placed a solid second with $21.5 billion in sales. In fact, during a year when virtually all enterprise spending was suffering, the 2004 VARBusiness 500 Top Six (so named because they, among all, managed to post revenues totaling 11 digits), so heavily dependent on the enterprise, still managed to post revenue gains, save for Palo Alto, Calif.-based Hewlett-Packard Services, which finished fourth again this year, even though its sales dipped to $12.3 billion.
The big mover this year among the 2004 VARBusiness 500 $10 billion-and-over club is Computer Sciences Corp. (CSC), which gained three slots to finish this year at No. 3, up from No. 6. The El Segundo, Calif.-based company increased sales to $13.8 billion, a hefty 21.5 percent. New York-based Accenture again finished fifth, with revenue up a modest 2.16 percent to $11.82 billion. And T-Systems North America, Lisle, Ill., finished sixth, with $10.6 billion.
Proprietary research reveals that aggregate revenue continued to grow for the VARBusiness 500--a good sign. In 2003, the combined revenues of the 500 firms totaled $323.7 billion, a 3.5 percent growth rate for the industry over the $313 billion reported in last year's results. That 3.5 percent represents more than a 50 percent increase over last year's growth rate of 1.9 percent.
Another positive trend: Exactly 214 VARs posted revenue last year of at least $100 million, up from the 212 that reached that milestone the previous year. On the other hand, 340 posted sales of $50 million or more, down two from last year. The drop-off is faster, perhaps a sign that industry bifurcation continues.
In addition, a look at the kind of solution providers that made the list indicates that more than four-fifths, or 81 percent, of those companies are standalone entities: They are not divisions or subsidiaries of larger companies. The other 19 percent are. Dividing the VARBusiness 500 into fifths, 9 percent of the top 100 companies are part of a larger organization; among the VARBusiness 101-200, 19 percent, the largest percentage among the five breakouts, are a division or subsidiary of a larger organization. Sixteen percent of the solution providers in VARBusiness 201-300 are a division or a subsidiary. From 301-400, 10 percent are part of a larger company, and from 401-500, 7 percent, the smallest percentage among the five breakouts, are part of a larger organization.
Fully 55 percent of the VARBusiness 500 are privately held companies, while the other 45 percent are public. Thirty-two percent have 1,000 or more employees; 45 percent have between 100 and 999. And 23 percent have 99 or fewer workers.
Meanwhile, the VARBusiness 500 billion-dollar club more than held its own this year--53 firms qualified for admittance, up one from last year. That reverses the downward trend following in the 2002 results, when 60 firms made the cut. Exactly 58 percent of all VARBusiness 500 firms moved up the list this year, growing in revenue, with 15 VARs more than doubling in size. However, at the bottom of the list, the cutoff point for No. 500 continues to drop off. No. 500 this year is Miami-based Terremark Worldwide, which recorded $15.3 million in sales, a clear indicator of the consolidation reshaping the landscape. As larger firms swallow up the $100 million-and-under businesses, the smaller firms still standing move up the rankings.
Continuing a new component we added last year, our survey asked the top 500 to cough up their gross-profit margin results. More than 60 percent, specifically 307 out of 500, chose to respond. Of those, 95 percent said that their gross-profit margin was at least 1 percent. That's a much higher percentage than last year when three-quarters of the list agreed to answer this revealing question; among them, 211 said they were operating at a gross profit of at least 1 percent. This year, 2 percent of their gross-profit margins are break-even. And 3 percent said that gross-profit margins were at a loss.
In terms of net-profit margin, 296 responded to the question, with 81 percent of that group saying their net profits were 1 percent or greater; 5 percent said they broke even, and 14 percent said they recorded net losses. (For more on the VARBusiness 500 profitability profile, look to our July 26 Profitability feature, which will also include a report from the VARBusiness 500 event to be held June 15 in New York City's Rainbow Room.)
Perhaps surprising, even as increasing commoditization pocks the solution-provider landscape, a majority of revenues, 53 percent, are still generated by product sales among the VARBusiness 500. The remaining 47 percent comes from services. On the vendor front, there are some changes this year that members of the VARBusiness 500 chose to work with. Fully 53 percent said they worked with Microsoft. IBM was cited as the second most popular vendor, with 52.6 percent of the 500 working with the vendor. Cisco was third this year, with HP and Sun coming in fourth and fifth, respectively. Last year, IBM led the vendor pack, Microsoft came in second and HP came in third.
There were also some major up-and-comers on this year's list. Chief among them is the fastest grower on our VARBusiness 500 list, National Network Services VB499, the Centennial, Colo.-based solution provider, that saw revenue climb a healthy 812 percent in the past year, to $15.7 million, from a scrappy start-up with $1.7 million in sales the year before. Meanwhile, more firms grew by 100 percent or more this year than last. Fifteen VARBusiness 500 companies doubled sales or greater compared with only 11 last year. Interestingly, more than half of the 50 fastest-growing companies participated in federal-government activity, a sure sign that this vertical, one of the most popular among the VARBusiness 500, is creating strong opportunities for aggressive companies.
Because IBM Global Services places so far in front of the pack, an average median revenue would offer a distorted finding. We decided, instead, to break the 500 down into groups--the first 100, the second 100, and so forth. For the VARBusiness 1-100, with a cutoff point of $378.8 million at No. 100, the median revenue was $1.1 billion and the average was $2.9 billion. For those solution providers that made the VARBusiness 101-200, with a cutoff point of $110.0 million at No. 200, $183 million was the median revenue; $202 million was the average revenue in 2003.
As the list hits mid-pack, a bell curve starts to emerge. That means there are fewer outliers--solution providers that are far afield from the rest of the companies in their grouping. Consequently, the averages come closer and closer to the medians. So, among those firms in the VARBusiness 201-300, where the cutoff was $59.6 million at No. 300, the median revenue was $78.6 million and the average revenue was $75 million. For the VARBusiness 301-400, with a cutoff point of $36.3 million at No. 400, the median revenue was $45 million and the average was $46 million. And among the VARBusiness 401-500, with No. 500 coming in at $15.3 million, the median revenue and the average were the same: $25 million.
This year, VARBusiness also decided for the first time to examine top revenue growers by size--after all, the larger an integrator gets, the less likely its revenue will grow. Of those firms with services revenue of more than $1 billion, Booz Allen VB33 enjoyed the strongest revenue growth on our list--a 66.67 percent increase to $2.20 billion from $1.32 billion in 2002. Coming in second in the grouping is World Wide Technology VB51 with a 53.63 percent increase from $716 million to $1.10 billion. In third place is Unisys Services VB13, which registered a 38.89 percent increase in revenue over its previous year, climbing to $5.91 billion from $4.25 billion. Among the firms in our exclusive VARBusiness 500 billionaire's club, 22 of them posted double-digit revenue growth.
Among the VARs in the $100 million to $999 million range, PFS Web VB124 had the best revenue year--an impressive 202.68 percent increase to $282.4 million from $93.3 million. In second place was Bull Services VB88, which grew to $428.4 million in sales, a 170 percent increase over its 2002 revenue--$158.7 million. And Wipro VB76 has the third-highest revenue increase in this middle group--at 129.88 percent to $594.0 million, against $258.4 million the prior year. Four solution providers in this revenue range posted triple-digit increases and a total of 62 firms had double-digit sales increases.
Finally, the leading revenue gainer among those integrators on the VARBusiness 500 that had sales under $100 million was, as previously mentioned, National Network Services. Finishing second in the category is FusionStorm VB297, gaining 284.62 percent by increasing sales to $60.0 million from $15.6 million. Madison Research VB269 was the third-leading sales gainer in this field, climbing 230.95 percent to $69.5 million from $21.0 million. There were more double- and triple-digit increases in the $100 million and under category than any other, likely because it's easier to double sales a company starts out at $10 million rather than $10 billion. A total of 11 companies enjoyed triple-digit revenue growth, while 93 posted double-digit sales growth.
The VARBusiness 500 cited Ingram Micro as the distributor they worked with most frequently--64 percent said they had business dealings with it in the past year. Close on its heels was Tech Data--63 percent of the VARBusiness 500 worked with that distributor. Past those top two, the list of distributors the 500 worked with dipped quickly. In third place was Synnex, with 34 percent, GE Access, with 12 percent, and Arrow, also with 12 percent.
Our overview gives you a good head start in analyzing all the relevant data found in our exclusive VARBusiness 500 research. But we've drilled down on many more facts about the industry on the following pages, so we urge you to continue reading.
Hats off to the 70 new firms to join the ranks of the VARBusiness 500 this year. And even heartier congratulations to the 430 that persevered in an increasingly demanding business.