Micro-P is offering IT, mobile and fixed line hardware across three distinct channels. The market has been slow on uptake, yet Micro-P’s profits have soared and the advent of tablet devices might just signal the arrival of proper convergence. By James Blackman
Micro-P’s is a distribution engine built for longterm pursuits in converging channels.
That is how managing director Gerry O’Keeffe puts it, responding at the same time to the observation the signposted crossroads is yet to be reached.
“This is the decade of convergence, not the year of it,” he says. “We are just laying the foundation for a 10 year roadtrip.”
There has been great hype around the crossover of IT and telephony, and their respective sales channels, for some years.
Any let-down is a function of this anticipation, and the desire within the independent sector for a new dawn.
It is also the result of the the ‘cut-and-shuts’ in the road – Avenir’s early experiment with IT distributor WestCoast failed; even Brightstar’s powerhouse UK joint venture with Computer 2000 is yet to convince in terms of cross-selling between markets.
Micro-P looks to be different. The “foundation” O’Keeffe refers to is the establishment in tandem of mobile and fixed line distribution units to run alongside its well-oiled IT business.
But he also admits there remain cultural barriers for a distributor like Micro-P playing between the lines.
Different channels are of different vintages; the fixed line market came of age in the 1970s, the IT sector in the 1980s and the mobile dealer channel in the 1990s. Their attitudes towards new ways of working tend to see-saw with their age, and natural crossover of their wares varies anyway.
As an aside, superannuation explains also the ease with which acquisitive firms like Daisy Group have consolidated the fixed line sector, as a generation of resellers looks for a last big pay-day.
But O’Keeffe says Micro-P’s work so far has been as much about planting flags. “It’s now about joining up the dots in some respect in terms of the overall service proposition,” he says.
Revenue growth
However one rates its cross-selling of distinct products to distinct channels, Micro-P has moved early and profitably to make available varied supply.
It posted a 24 per cent jump in sales revenue, to 476 million, in the year to March 30, 2010. Its operating profit increased by 1.9 million to 8.9 million in the period, up 27 per cent compared with its 2008/9 figures (see bottom of page).
“Every department makes money. Every one is a bottom-line net contributor to overall profit and loss. The performance of each division is positive. Could it be better? Of course. But I have luxury that everything those teams deliver is net profit, and everything around this business is paid off,” says O’Keeffe, in reference at the last to its recently-expanded office and warehouses bases.
Micro-P’s fixed line and mobile units contributed almost 10 per cent to its top-line number within 12 months of their operation – or the best part of 50 million of sales revenue.
It has 18 recruits in both its mobile and its fixed line units, comprising divisional heads (Avenir Telecom and Computer 2000 veteran John Doughty leads the former, and ex-Nimans director Philippa Parish the latter), the best part of a dozen hammering the phones and the rest on the road in dealer support.
A pair of recruits are expected to join each department shortly.
O’Keeffe acknowledges plainly that cross-supply, or the trumpeted convergence of independent SME channels, is a way off still.
Mobile, fixed line and IT channels have operated in isolation, by and large, to now, and stuck at familiar trade, although Micro-P is running as a destination for each.
“For now, those teams are operating quite seperately. The intention is to migrate them, so all three supply lines are a part of the same sales conversation.”
Those numbers have been achieved in large part by selling fixed line products to fixed line resellers and mobile phones to mobile dealers.
It is already selling to over 400 customers in the fixed line market each month, and has taken supply of systems solutions from NEC and Samsung for them, alongside a fast-selling range of peripherals from the likes of Plantronics.
“That channel is pretty well established now,” remarks O’Keeffe.
It has just brought Cisco into its portfolio also, essential to systems integration and the high-brow unified communications piece, and Cisco should provide some glue as its goes about uniting SME sales channels.
Its headline deal with Samsung for handsets hinges on the same stretching terms as the Korean manufacturer sets specialist partners like Data Select. Its numbers must therefore be significant. O’Keeffe says the relationship has become easier, following tough early quarters.
“It is a very, very strategic relationship with Samsung, which is key to the decade ahead for us. The philosophy is very much to bring it on board because we know we can do the job for it that we do for the rest of Samsung.
“And after a rocky quarter or so, it is now starting to come good.”
And on this point of crossover supply, Micro-P has in fact written some major contracts: it handles most laptop supply to retailers Three and Phones 4U, and has secured a useful line on Foxconn’s own-brand Commtiva tablet to the latter, as well as O2.
O’Keeffe clarifies Micro-P’s ambition for its mobile and fixed line units: “To grow that to 20 per cent over three to four years is realistic.”
Sales atmosphere
Its overall sales and profit figures must be considered impressive – distribution is cut-throat, margins are slim and few of its competitors can claim such growth, especially firms so long in the tooth as Micro-P. But longevity is essential to its good record.
O’Keeffe reels off the names and tenures of Micro-P’s senior management, like a roll-call of long-servers: commercial and sales director Paul Bryan, business development director Simon Woodman, retail director Mike Buley, vendor director Mark Kahr. Each has been with Micro-P for 15-20 years.
The whole place, he says, is imbued with an intense sales culture. Its telesales staff make 5,000 outbound calls per day, prospecting for business.
When Mobile News visits (actually mid-November), it has just returned its best call data of the year, outside of the busy March period.
“We have really close metrics on business performance, day to day, hour to hour, minute to minute. That focus ensures we can measure performance as we bring new vendors on,” says O’Keeffe.
Its move at the start of the year to a new premises in Basingstoke, adjacent its old site, affords its selling functions room to expand and to breathe, ridding it at the same time of the awkward kink in the old building layout and intensifying further the atmosphere.
O’Keeffe refuses to go much further here with discussion of Micro-P’s profit-making, on the grounds rivals might pick up some of its good habits – not, he makes clear, distributor rivals in the mobile channel who might be considered likely to read this article, but competitors in IT distribution.
“The mobile aspect does not concern me too much, because mobile distribution as it is cannot survive; it cannot continue to stand alone. Straight mobile phone distribution can only become more difficult. No, my competitors are Computer 2000 and Ingram Micro and SCH,” says O’Keeffe.
“They are the ones I don’t want knowing what we are doing.”
It is, in itself, quite a statement of UK mobile hardware distribution, and the difficulties it faces as this “10-year roadtrip” towards some promised land of crossover supply unfolds.
Is anyone in mobile distribution going to be able to make that transition, or are they all sitting targets for the big IT broadliners in the medium to long term? The logic of Micro-P’s channel hopping is implicit in O’Keeffe’s response, that few will triumph in a single sector.
“I don’t know. I mean 20:20 is a formidable business. It has had a difficult few years, through transition of what it was before to what it is now, but it is a very professional organisation and it has got the breadth and reach to do it.”
In a previous life, O’Keeffe was of course long-serving finance and operations director with 20:20 Logistics, as it was under John Caudwell.
But his view of the sector is measured nevertheless. 20:20 Mobile, alone of UK handset distributors, then? “I struggle to see how others can continue longterm,” he says.
Nimble channels
O’Keeffe’s point about bringing new vendors on board is also important. Micro-P is considered agile among IT broadliners, when compared to the above-named firms, plus the likes of WestCoast and Northamber.
It specialises in the mid-market; it has a reputation as the go-to firm for supply into influential, but hugely disparate, third-party resellers.
Its arrangements with Toshiba, Sony, Samsung and Acer for issue of IT hardware are well-grounded. Where it has new terms, as with laptop maker Lenovo say, its routes to market have been clear enough for instant returns.
Its Lenovo sales have hit 30 million in just 12 months, from a standing start. Its Plantronics sales are close to 10 million per annum, grown from 1.8 million 12 months ago and zero 24 months ago.
Such nimbleness in the SME market is reason Dell has seen a way clear to subvert its infamous distribution controls and hand Micro-P a third-party contract.
O’Keeffe claims Micro-P’s flexibility is reflected also in its work to segment and micro-manage market verticals.
He explains: “You have systems integrators, which you address with a certain product; the education market, which we have established as a distinct channel in terms of big AV projects and implementation; print management is another, served with print consumables and solutions that bring value to that sector and share to us.”
Market innovation
Micro-P has been active in such exploratory pursuits lately with operator Three particularly. It missed out on the early-2010 accreditation for the Universal Home Access scheme, a programme run by Government quango Becta (formerly the British Educational Communications and Technology Agency) to issue under-priveleged children with laptops and web connectivity.
Instead, it partnered with IT provider Centerprise, accredited for the project, and struck up also with Three to supply Toshiba laptops, as well as Samsung and Lenovo kit, in conjunction with Three’s mobile broadband. Micro-P worked via its reseller base, as well as Three and Phones 4U outlets.
The scheme lasted eight months to November (Becta has since been diminished); over 270,000 grants were approved in the period.
Micro-P/Centerprise was one of six outlets for the project, and handled close to 30 per cent of supply of laptops, dongles and mobile broadband airtime.
Retailer Comet took 50 per cent, and the rest was mostly by Westcoast on HP/O2 supply in conjunction with reseller XMA.
O’Keeffe reflects: “We have done over 50,000 mobile broadband connections with Three, plus around 1,000 with O2, and around 70,000 laptops, mostly from Toshiba, but a good number of Lenovo and Samsung stock also.
“That was a significant six-figure contribution to net profit in the first half of 2010/11.”
Similarly, Micro-P is working with Three on a new salary sacrifice programme, structured in the first instance with accountancy firm BDO Stoy Hayward around supply of consumer smartphones.
Typically, salary sacrifice allows employees to give up some annual salary in exchange for items such as childcare and bicycles, free of tax and national insurance.
Employers save up to 12.8 per cent national insurance on the gross income sacrificed. Smartphones also fall under allowable items for such tax benefits, and Micro-P is offering them (Apple iPhones, via Three, and Samsung and BlackBerry handsets) with Three airtime.
Its resellers can pitch the scheme to HR departments and take stock and commission for sales from Micro-P.
O’Keeffe says: “It’s been quite complex to bring together and is an indication of the kinds of solutions selling we are doing. We are looking at a different market, and ways to serve it. And it is a great opportunity for our dealers and reseller customers to approach HR departments with a brand new offer.”
Tablet computers
There are signs now the market is coming around. The convergence of technology necessarily precedes the convergence of sales channels, and certain hardware and communications solutions look a step closer the real deal.
O’Keeffe observes: “It will develop, and actually the tablet can force a pretty early collision between mobile and IT. There are a whole load of manufacturers bringing them out – Acer Toshiba, Lenovo, BlackBerry – and some are from a mobile background and some are from the IT space.
“There are questions of connectivity in terms of 3G and Wi-Fi, and associated contract subsidies.
“And everyone debates still whether the right form factor is five, seven or 10 inches. But quite clearly, there is room for that in-between device.
“There is already a turf war between Carphone Warehouse, Phones 4U and Dixons to be seen as destination retailer for these devices.
“The point about the tablet device is it is great for consumption – for users of information, consumers, as opposed to creators. Laptops, and to a degree netbooks, are for creation. And with the iPad and some of these other tablet devices, the entertainment features are a genuine seling point.”
Is that collision of mobile and IT with tablet devices reflected in the way manufacturers work structurally, and how they handle their contractual relationship with customers like Micro-P?
Is Samsung, say, which is playing with Micro-P across the broadest possible range of hardware, coherent as a supplier? Does Samsung Mobile pay any regard to Micro-P for its reputation with the broader Samsung Electronics business?
“To be fair, its mobile unit stands very much alone; it doesn’t care who you are in terms of IT. And it has very clear deliverables it needs us to support it on, and we recognise that.
“But increasingly the two will get closer because of the advent of the tablet, because it does bring these sectors together,” says O’Keeffe.
And operators are increasingly bringing propositions to market that should blur sales channels.
Vodafone’s OneNet package, O2’s Joined Up billing offer, and Orange’s new Pocket Landline FMC product all play to this idea of convergence.
Micro-P might appear like an good conduit in many ways for them; a firm with its finger on the pulse of the IT reseller market, and a client base used to consulting, selling and integrating complicated systems.
It has direct airtime arrangements with O2, Orange, T-Mobile and Three already, and Vodafone for some business via subsidiary Yes Telecom, or Vodafone Partner Services as it has been rebranded.
It is closest Three and O2, with laptop supply to the former’s retail estate and resale of its airtime to IT channels, and with issue of mobile broadband (and increasingly voice) by the latter into its core base.
Orange airtime supply is a newer agreement, which will receive focus through 2011 and could gain Orange a pass into these parallel markets also.
O’Keeffe says of its airtime pursuits: “We are less visible in airtime because this flag-planting has been focused on handsets and peripherals. We are starting to pull our proposition together now around airtime. One of the issues has been the operators are very comfortable with the distribution model they have had in place for a long time.
“But we are starting to sell O2 Joined Up into the (fixed line) communications channel. Vodafone is fairly focused on direct sales and business via its third-parties.
“It has not looked to go into broader IT distribution yet, but Vodafone has checked in with us of course, and OneNet is one we expect to focus on in the future.”
Future acquisitions
The market has reached a point now where there are at last smart crossover products from operators, although their routes to market remain largely traditional, and a genuine in-between device in the shape of the tablet.
Operators in particular are requesting mobile dealers step up, and gain accreditations for more advanced selling and technical skills.
As well, distribution firms are attempting to position themselves for this convergence of technologies and sales channels.
Fixed line sales are a standard sideline for airtime distributors now.
Ingram Micro has established a telco business across Europe. Brightstar and Computer 2000/Tech Data appear to be running like distinct businesses off a common platform. But their joint venture must be a contender in the new market because of its sheer scale.
But Micro-P looks to be making early running.
Might it consider taking out a niche airtime distribution business, or even an established handset distributor, to make its running faster, or even a major name in handset distribution?
“Sure. We are a part of an acquisitive group. We have got very longterm borrowings, with lots of cash available in the short-term.
“But there has to be a strategic fit, there has to be an opportunity for ongoing profitability, and it has to be the right price. But we are always on the look out,” remarks O’Keeffe.
Distributor giants
Top distributors in the UK mobile and IT hardware channels by turnover:
Computer 2000 – 1.02bn
Ingram Micro – 650m
Westcoast – 650m
Micro-P – 476m
20:20 Mobile – 390m
Micro-P posted a 24 per cent jump in sales revenue to 476 million for the year to March 30, 2010. Its operating profit increased by 1.9 million to 8.9 million in the period, up 27 per cent compared with 2008/9 figures.
Pre-tax profit increased to 6.57 million, after factoring costs paid to parent company, Irish conglomerate DCC.
Staff numbers were up by 27 in the period, to 407, based at its headquarters in Basingstoke, Hampshire, and its distribution centre in Altham, Lancashire.
Its latest Companies House filing says 266 people work in selling and distribution and 141 in general administration, up from 253 and 127 respectively in the year-ago period.
