High margins in the hardware segment – a possible reality | compris-cm.com

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High margins in the hardware segment – a possible reality

Hardware sales has notoriously carried single-digit margins for solution providers and resellers but some companies manage to drive high profit margins from this segment.

Brick and mortar dealers can not survive purely on reselling hardware products; margins are too low and competition from retailers and e-tailers is too high. System providers and resellers are forced to calculate margins between 1-5% or 6-10%. 

 

COMPRiS recent survey of 350+ solution providers and resellers indicates lower profits in segments where sales has historically achieved higher margins. 36% and 41% of respondents said server and storage segments, respectively, have to settle with mini-margins between 1-5%. The worldwide server market has not been a gold mine for a very long time. Even though x86 servers continue to provide high revenues, the margins of suppliers and dealers are constantly under pressure. 

 

Margin Servers© COMPRiS Ltd, January 2014

 

74% of respondents indicated that monitors and displays brought them margins between 1-5% or 6-10%. Only 7% of resellers generate profit margins of at least 16 %. 

 

Margin Monitors/Displays

© COMPRiS Ltd, January 2014

 

Weakened PC sales combined with the use of laptops by private customers have been the contributing factors for dramatic decrease in sales of monitors, sending standard screen prices plummeting.

As expected, margins from PC and notebook sales is also poor: 86% of respondents indicate margins around 1-5% or 6-10%. Only a minority (2% of respondents) generate lucrative profit margins of 16-20%. 

 

Margin PC/Notebooks© COMPRiS Ltd, January 2014

 

But even in this difficult environment 8-10% of businesses expect margins between 16-20%. This is reflected, for example,  in digital signange  an area currently dominated intensively by manufacturers and distributors. 24% of companies have to settle on margins between 1-5%, but for 26% the margins generated are between 11-15%, and for 8% of  respondents its in the range of 16-20%. 

 

Margin Digital Signage© COMPRiS Ltd, January 2014

 

Due to larger resellers focusing on high-volume, low-margin projects, this opens the market for small and mid-size enterprises to specialize in regional and vertical markets, with significantly higher margins possible to attain than in large-scale projects.

General opinions and judgements about margins in certain product segments are out of place. There are partners who can realise higher, double-digit margins in competitive business segments, says Gerald Holler, CEO of COMPRiS Channel Management Ltd. So there are ways to achieve higher profit margins in the monitor business: the opportunities lie with larger, higher-quality devices, where prices are relatively stable and margins remain attractive. 

In the software segment the majority of respondents reported consistent margins between 6-10% and 11-15%. Margins are significantly higher when software is offered as Software as a Service (SaaS). 

 

Margin Software as a Service vs box / licance sales

© COMPRiS Ltd, January 2014

 

Conclusion

 

 

As stated by many IT resellers, margins in the hardware segment are fairly low. Nevertheless, some partners are able to generate high profit margins with hardware sales. This is possible when focusing for example on higher value products and regional markets, leading in some cases to double-digit margins. The software segment is also affected by the erosion of margins but Software as a Service (SaaS) provides better business opportunities with substantially higher profit margins obtainable than licence / box sales.