Value adders feelin the pinch

While Melbourne-based reseller and services company Praxa made the news last week with revelations it had laid off 63 staff following its second major restructure within two months, it is not the only channel player finding it hard to push volumes at present.

John Grant, CEO of Data#3, told ARN the company had been gradually scaling back its operations since the start of the financial year in a bid to match sliding market conditions. Subsequently, the staffing levels at Data#3 have dropped by around 40 people (10 per cent) in the past few months.

"It's fair to say there remains a reasonably depressed product market since the second quarter of last financial year," Grant said. "Particularly for desktop and network products. Not so much for applications. Integrated enterprise applications like ERP, CRM and e-commerce - and the infrastructure supporting it - are our strongest areas at the moment."

Similarly, Centari Systems managing director Jon Johnston said the company's server business is doing a lot better than its PC business.

"Given what I've read, the market isn't doing all that great. The July-September market figures for example, were about 20 per cent lower than the January figures. You'd expect there to be some kind of adjustment."

Not everyone in the channel is fessing up to drops in sales volumes however. Simon Duncan, executive director of the Volante Group, is forecasting a $7 million net profit for the year to June 30, 2001, based on the services division formed by merging with AAG. While Duncan said there were a few "drop-outs" during the merger, Volante has had a net gain in staff since it took place.

Data#3's Grant is surprised a company like Praxa, which has a major focus on services, has suffered in a market where most of the problems have been caused by declining product sales. He describes the product market as being "flat" at present, but is quick to point out that the channel is cyclical by nature. He believes many channel companies scaled up operations for Y2K and GST, and have had to scale back down again in their aftermath.

"You've got to rescale a business to the market opportunity," he said. "Unfortunately, being proactive sometimes means making people redundant."

Grant predicts the second half of this financial year to be stronger.

"Our surveys with customers find them in a state of flux, driven by uncertainty about e-commerce and all these new ways of doing business," he said. "Like all of us, their margins are under pressure and they are in planning mode."

Praxa went through a major restructure at the end of September, splitting into three separate divisions, Praxa Technology, Praxa Business Solutions and Praxa Digital Media Group. During this change, the company appointed former Deloitte consultant Colin Holgate as CEO, and had about 500 staff.

The company claims the new round of redundancies only reduced staff that were not "client-facing" or part of core business units. Further to this, the company refused to comment.

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