Acquisitions Fuel Growth for Reseller Logicalis

Published: May 21, 2007

by Timothy Prickett Morgan

Thanks to a number of acquisitions in recent years, Logicalis, a division of the $3.2 billion tech conglomerate called Datatec, has emerged as one of the dominant value-added resellers of servers from IBM, Hewlett-Packard and Sun Microsystems. Both Logicalis and its parent company just finished their fiscal 2007 years at the end of February, with Logicalis posting very good growth.

For fiscal year 2007, Logicalis booked $696 million in revenues, up 37 percent. According to the financial results posted by the company, $43 million of that increase in revenue came from acquisitions made during the prior two fiscal years, but the company also said that excluding these acquisitions, revenues were up 11 percent in the core Logicalis businesses. Logicalis said that product sales--meaning servers, storage, switches, and other IT gear and software that runs on it or with it--rose by 38 percent, while sales of consulting and tech support services rose by 24 percent. Logicalis also offers remote managed services for companies that are frustrated by dealing with their own gear, and this business grew by 35 percent in fiscal 2007. Application integration and contract staffing services saw a revenue increase of 63 percent. The Logicalis unit posted an operating profit of $18.8 million, up 62 percent. Logicalis has 1,200 employees worldwide and has more than 5,000 customers.

Interestingly, Logicalis outgrew its parent company, which also sells telecom equipment and services around the globe and is a public company that is traded on the London and the Johannesburg Stock Exchange. In fiscal 2007, Datatec's sales rose by 17 percent to $3.2 billion, and operating profits rose by 45 percent to $100 million.

According to Kirk Zaranti, who is senior vice president of sales for the Logicalis operations in the United States (which is located in Bloomfield Hills, Michigan), Logicalis has operations in the U.S., Europe, and South America, but oddly enough not in South Africa, where its stock is traded. About 60 percent of the sales that Logicalis booked in the past year came from North America, with Europe representing another 34 percent and South America representing the remaining 6 percent.

The company is focused on pushing solutions, not just iron, says Zaranti. "We lean very heavily on the solutions aspect of this business," he says. "Instead of having generalists, we build very specific skills in servers, storage, and software." Logicalis has three innovation centers in the States, and plans to add five more this year; these are where the company shows its customers how to setup solutions and test out ideas before they pay for them.

Not only does the company sell the entire portfolio of IBM systems and its related software, it also resells services from Global Services and provides leasing and other financing through IBM's Global Financing arm. A little over half of the platform sales at Logicalis are driven by Unix, with X64 platforms (meaning Windows and some Linux) driving another 40 percent or so. The remaining 10 percent or so is related to hardware, software, and services sales on System i and System z platforms. Logicalis just received the IBM Beacon Award for 2007 for the best overall technical excellence.

Zaranti says that System i sales are driven by the normal upgrade churn as well as by disaster recovery and high availability software; he adds that IP telephony is starting to take off, and server virtualization and consolidation are also big factors in the deals Logicalis is doing on the System i these days. The company is also offering a managed service for System i platforms for shops that do not want to administer their servers any more.

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