The major leaps in the growth of power in the Intel [Corp.] chip technology is on the server side now,” said Harman Cadis, vice president of enterprise solutions at distributor Pinacor Inc., Tempe, Ariz.
Cadis predicted this will continue because of the ongoing development of client/server and enterprise applications that require more and more server horsepower.
But servers with Intel processors are only part of the story. Distributors specializing in the Unix and IBM Corp. AS/400 platforms report healthy business as well.
“The Unix server market has actually been fairly strong, but the [AS/400] proprietary market has been very strong in the last year,” said Bob Bailey, senior vice president of Keylink Systems, Solon, Ohio, a division of Pioneer-Standard Electronics Inc.
Bailey attributed the AS/400’s strength to IBM’s efforts to make the servers more Internet-ready. “IBM made a big push for going to the Internet with the AS/400,” he said.
Development of new, more robust applications and the price/performance of the AS/400 also play a major role in the platform’s success, said Scott Munro, chief executive of distributor Savoir Technology Group Inc., Campbell, Calif. Of course, he said, the quality of the hardware also helps. “That thing is bullet-proof,” he said.
Faced with ever-shrinking desktop margins, distributors welcome the server sales. Over the past year, selling desktops became even more challenging as vendors embarked on build-to-order strategies and reduced price protection on PCs sold through the channel.
“On desktop products, margins continue to see pressure,” said Bill Page, general manager of the Merisel Open Computing Alliance, a division of Merisel Inc., El Segundo, Calif., focused on the Sun Microsystems Inc. platform. “It’s true also in the server market, although the margin pressure there is less dramatic.”
But even with the margin pressure, server sales offer distributors the bonus of add-on product sales and services. For resellers, selling service packages can add more than 20 percent to the margin on a hardware sale.
“Very few servers that handle mission-critical applications at the enterprise level are sold without some sort of post-sale service contract,” Page said. “By definition, if it’s a mission-critical application, you don’t want the thing down.”
Server sales are also giving a big boost to memory and mass-storage sales, particularly for technology used to set up storage area networks, distributors said.
“Storage and memory requirements for some of these solutions are enormous,” Cadis said. Bailey agreed: “The storage business has been very strong.”
Distributors focused on servers are also finding database applications, driven by Internet and intranet development, another growth opportunity, Bailey said.
The trepidation in the channel about general market conditions this year is not affecting distributors when it comes to servers. And much of that, distributors say, has to do with the growing popularity of enterprise software applications.
Vendors such as Baan Co., J.D. Edwards Corp. and Infinium Software Inc., which develop enterprise resource planning applications, and Computer Associates International Inc., which sells network management products, are turning to the two-tier channel to help boost market share.
With that in mind, distributors Merisel; Ingram Micro Inc., Santa Ana, Calif.; Savoir; Pinacor; Keylink; and Hall-Mark Computer Products, Tempe, Ariz., took steps in recent months to target the enterprise opportunity.
Merisel, Ingram Micro and Pinacor dedicated sales and technical staffs to enterprise divisions, while Savoir, Keylink and Hall-Mark stepped up efforts to support opportunities in ERP applications and Windows NT solutions.
Savoir gained authorization to carry Compaq Computer Corp. products, which positioned the distributor to leverage Compaq servers for enterprise-level opportunities, Munro said.
Munro is especially interested in the Windows NT applications market, where he said server margins are tighter than in the Unix and AS/400 segments.
“The NT market is nowhere close today to covering a significant chunk of the enterprise space,” he said. “We are playing there, but we think it’s an investment in the future.”
Munro said he has yet to see much effect on server sales by another expected growth driver: year 2000 conversions. But Merisel’s Page predicted that corporations upgrading their systems to support year 2000 dates will help server sales this year.
“That will be the next wave, and there will be software applications that will come down the pike with that,” he said.
In addition to servers handling existing applications, Brooke Powers, vice president of systems sales at Tech Data Corp., Clearwater, Fla., said servers with innovative applications will also help keep the server market healthy. “We’re bullish on the server market,” Powers said.
Another area of growth for servers, he said, is unbranded systems, or white boxes. In January, 31 percent of VARs polled by CRN cited white boxes as their best-selling server, up from 25 percent six months earlier.
While desktop systems will certainly remain a staple in the distributor’s warehouse, its importance as a driver of growth is giving way to a host of new opportunities tied to the server. For distributors, the stars may be aligning around a new engine of growth.
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