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Exclusive: An industry in Lockdown – NZ's IT disties comment

15 Apr 2020

UPDATE: Aotearoa New Zealand's largest distributor, Ingram Micro, has responded. NZ managing director Jason Langley says that "there’s a general sentiment of optimism amongst the Ingram Micro team ... overall sales forecast remains steady and in line with pre-COVID-19 expectations." 

Ingram has not applied for the wage subsidy and, Langley states, "we have a number of more acceptable options available to us before we consider changes to staffing levels."

He highlights Ingram Micro's Cloud Marketplace for "partners who have already adopted a subscription-based model," and asks that partners who need support "keep the communication lines open and engage with our team early. Ingram Micro is genuinely eager to help where it can and is committed to continuing to support New Zealand’s channel."

The COVID-19 pandemic has been a wild ride for the global IT industry and New Zealand has been no exception, with distributors sitting in the middle of it all.

ChannelLife reached out to the national managers of all of our major disties to try to gain an understanding of what it feels to be trying to keep themselves and the industry alive during the Alert Level 4 lockdown.

Responses

In total, we received eight responses in time for publication from the16 distributors that were contacted, one of whom is a division of another.

They were (alphabetically):

  • Chillisoft – CEO Alex Teh
  • Dicker Data – CEO and chairman David Dicker 
  • Duo (division of Sektor) – General manager Kendra Ross 
  • Exclusive Networks – NZ and Pacific country manager Jeff Clynes
  • Exeed – Managing director Justin Tye
  • Ingram Micro – NZ managing director Jason Langley
  • Soft Solutions – Managing director Chris Fitzgerald
  • Synnex – NZ sales and marketing director Johnson Ko
  • Westcon-Comstor – NZ managing director Dave Rosenberg 

Wage subsidies

According to the responses and Work and Income’s COVID-19 Wage Subsidy Search, as of April 8, five of the 15 disties (Duo not included) have received wage subsidies. All respondees were honest about whether they had applied.

Those who had taken the subsidy were Exeed ($676,212), Synnex ($425,976), Sektor ($393,657), Hills NZ ($174,280), and Snappernet ($91,384).

According to the Treasury, the wage subsidy scheme will likely end up supporting Kiwis to the tune of $8-12 billion. 

For those distributors who have taken a 30% revenue hit, it could be the only way to keep their staff employed through the lockdown.

While Soft Solutions has not yet reached that 30% drop, Fitzgerald says, “(we are) keeping our options open.”

“It’s a good thing to access,” Synnex’ Johnson Ko points out.

“The staff we have working are getting paid normally. The people who are not working at least get the subsidy and then we top them up to a certain percentage as well. We are also talking with them about strategies such as using annual leave where possible.”

Shipping

One of the biggest challenges for many distributors who supply physical products is the restraint on air-freight.

Some of the companies, such as Dicker Data, say they are seeing minimal disruption, but others are noting that shipping costs are becoming difficult to navigate while keeping product prices reasonable.

“Almost all our importing is from China,” explains Exeed’s Justin Tye. 

“The supply chain out of China has significantly improved in recent weeks but the lack of frequency and reasonably priced airfreight is an issue.”

Ko notes that the price of getting stock in urgently has rocketed – “where it might have cost $600, it’s now $2600.”

A major reason is that this kind of freight often comes in with passenger flights which are operating at about 5% of what they previously did. 

Staffing

One of the major expenses for any company is staffing. As revenues drop, it is heartening to see that all of the respondees are making staff retention a priority, at least for as long as they can.

Jeff Clynes says Exclusive Networks are only making “positive changes” and Kendra Ross says that “Duo was recruiting for Pre Sales staff prior to COVID-19 (and) once Level 4 is finished we will focus on this again.”

Of course, as Fitzgerald puts it, “nothing is certain about the level of business activity we will see over the next two to three months.”

Westcon’s Dave Rosenberg expands on this point stating, “there will need to be some compromise for all businesses as this will have an impact on the economy and will take time to recover.”

Revenue

Of the eight respondees, four state that revenue is down, two that there is no major difference, and two made no comment on this matter.

Fitzgerald highlights that many large projects were going on hold and Tye noted that the ‘essential products’ limitation was adding pressure. 

Ko reports that as they mainly supplied brick and mortar retail, Synnex NZ was operating at a third of their usual revenue.

Clynes was optimistic stating that “many things are challenged at the moment however there are always silver linings to situations if you’ve brave enough to find them.”

Opportunities

Perhaps the silver lining that Clynes was referring to, cloud-based solutions are providing a reliable source of recurring revenue.

Cybersecurity specialist Chillisoft operates without any physical product and has found that business has balanced out.

“Although some of our bigger enterprise projects have been put on hold or are delayed we are seeing an increase in business from the securing of remote working environments and new projects aimed at protecting essential services,” says CEO Teh.

Both Rosenberg and Clyne point out that while there is not a lot of demand for largescale cloud conversion, collaboration and security solutions are both, unsurprisingly, in demand. 

In the physical space, Johnson Ko says out that remote working devices and accessories have seen a huge rise in demand. 

“We had an overstock of a certain Razer gaming headset,” he offers as an example, “We went from 1200 units down to zero in just a few days.”

Ko also refers to a recent call from the Ministry of Education for devices for remote students. No doubt this will provide a valuable boost for any distributor or reseller able to get a slice of the pie.

Conclusion

Each and every respondee said that they were open to conversations with partners who may be looking for advice on how to pivot or diversify, or manage cashflow in this trying time.

“We are doubling our engagement with all partners to better understand their needs and to assist them,” David Dicker says.

“We are also facilitating partner-to-partner connections so those partners who are overwhelmed with work can share the load with other partners in their local area that have spare capacity and the right skillsets.”

Johnson Ko expresses relief that New Zealand is currently run by a Government that has acted decisively and is far more supportive of the general population over the rich and powerful.

Of those who responded and weren’t SaaS-focused, it was clear that the bigger the business, the better positioned they were to survive this pandemic. Not to say there aren’t challenges for them too.

I will leave the final word to Dave Rosenberg:

“Be Kind, Stay Calm and I do believe we have got this. We, as an industry, have been through many challenges and this one has a definitive end in sight.”

 

Note: Other distributors reached out to listed below

  • Final responses not received at the time of publication
    • Rhipe
    • Sektor
    • Hills NZ
  • No response
    • Arrow
    • Snappernet (Snapper Networks)
    • Tech Data
  • Declined to comment
    • Dove Electronics