Gov't Divisions Buoying IT Distributors

Government sales are holding their own for the largest information technology distributors ? and that's good news, given the softening of commercial market spending. Distributors are cautiously optimistic about the near-term future of the public-sector market, saying that IT spending will be bolstered by reliable government budgets, Health Information Portability and Accountability Act requirements and a new administration keen on boosting information security.In early 2001, distributors Ingram Micro Inc. of Santa Ana, Calif., and Tech Data Corp. of Clearwater, Fla., saw some reversal of the gross margin increases they enjoyed last year. The reversal was due to competitive pressures, reduced vendor rebates and slower-than-expected overall growth, said Brian Alexander, analyst with investment firm Raymond James and Associates, St. Petersburg, Fla. But whether that means prices will decline again is unclear.As the economy softens and commercial spending dips, government divisions are emerging as shining stars for IT distribution generalists and specialists as they continue to attract federal, state and local dollars. "The government continues to get tax money in, and with Y2K addressed, they are still making strategic investments in technology," said Pam Bryson, vice president, business development at Ingram Micro. "Now that the new administration is [settled] in and the budget process is coming to a close, we're seeing business picking up."Distributors are pursuing this business by continuing to implement programs that assist value-added resellers, as evidenced by recent activities by some of the leading government distributors:?Tech Data is enhancing configuration, setup and other services for VARs and has nine new strategic business units dedicated to providing VARs with expertise on specific technologies. The company, which is seeing its government sales deliver higher than average orders, also has extended its Partner Plus program to include more pricing levels and bundled services; and a few government VARs have begun using its Web-based, end-user e-commerce ordering tool for special projects. The government division is reviewing government reseller credit lines to help VARs keep credentials up to date. Tech Data also announced enhanced credit terms and seminars to help VARs improve their financial resumes. At the end of May, the distributor was poised to debut a new Tech Select program for government VARs to network and partner with non-competing resellers.?Ingram Micro completed its trial and opened its Partnership America VAR e-commerce program on a limited basis, with about 30 VARs now participating. Ingram also is enhancing contract services support and outsourcing programs and is expanding its range of enterprise solutions to include more Microsoft Windows NT, Unix and Linux products. The distributor's move into the application service provider arena may soon include a partnership with a government-focused ASP. ?D&H Distributing Co. of Harrisburg, Pa., is building its new government division with newly negotiated discounts, more inside and outside sales staff and increased bid-desk support. The company, which focuses on peripheral and new technology, is pursuing more credit services options for VARs, said Jeff Davis, vice president of sales. D&H also acquired its own General Services Administration schedule, which the company expects will boost state as well as federal business and attract more government VARs. The company is adding vendors to the master contract.?Comstor Inc., Chantilly, Va., a networking specialist, maintains a GSA schedule on behalf of Cisco Systems Inc. and promotes vendor and VAR collaboration on new opportunities. Comstor foresees particular interest in its newer security products from Cisco and RSA Data Security, as well as engineering consulting services such as security audits as a result of the Health Insurance Portability and Accountability Act of 1996. The distributor has introduced a professional services practice management solution and is enhancing professional services offerings to supplement VAR skill sets and minimize risk, contemplating installation phone support for resellers and scaling services such as network management for smaller enterprises. New product announcements are expected this summer.?Hot technology categories continue to include wireless systems, IP telephony and security, distributors said, with the latter garnering particular attention as government agencies and health care entities rush to comply with HIPAA rules. For example, plans call for the states to comply with HIPAA data standards by Oct. 16, 2002, and with privacy standards by April 14, 2003."That means more opportunity for municipalities to involve themselves with IT," said Terry Bazzone, vice president and general manager, strategic business development at Tech Data. Another reason for heavy interest: HIPAA has teeth."The impact will be very large, with large fines and jail time penalties for those that don't comply. People will pay attention to it and, therefore, resellers will focus on it," said Joe Heinz, vice president of engineering and professional services for Comstor.Networking investments continue at a steady clip. In fact, networking products have supplanted PCs as the top-selling category in government for Ingram Micro during the last year, at nearly double the volume of the commercial business. Storage is the second hottest category.But Comstor is not about to yield its territory, claiming its narrow focus on nine networking product lines and high level of Cisco certification are key differentiators. "We generally don't suffer when compared to generalists," said Comstor's Heinz. E-government initiatives continue to drive investment in network infrastructure and storage. And many expect more dollars to flow into Defense Department IT spending, especially security, under the new Bush administration. Potential international threats, such as the United States' difficulties with China, have people "concerned about the safety and security of systems from attack by foreign countries," Heinz said.