IT dealer gives big brands the flick

By ADAM GIFFORD

Listed IT distributor Renaissance has dropped the Microsoft, Compaq, Hewlett-Packard and Toshiba brands, a move managing director Mal Thompson says will almost halve revenues but increase profitability.

"This is all about risk. I'm not optimistic about the market in 2002, so it's time to go back to our core business, which is being a value-add distributor," said Mr Thompson.

"It will cut $90 million from revenue, but we will still do over $100 million next year."

Mr Thompson said it was still unclear how many of the company's 170 staff would lose their jobs.

Bruce McKay, research head for sharebrokers DF Mainland, said Renaissance's share price was likely to go down as the second half-year profit drop was factored in, but would pick up if the stripped-down business proved more profitable.

"It's a ballsy call to tell an organisation the size of Microsoft to get stuffed, but Mal is doing the right thing," said Mr McKay.

Renaissance will concentrate on brands for which it has exclusive distribution, such as Apple, Epson and Macromedia, and in products and services for the education market.

In the half year to June 30, Renaissance made a $2.275 million after-tax profit on revenue of $91.025 million.

Microsoft New Zealand general manager Geoff Lawrie said Renaissance's move was not a vote of no confidence in the new Windows XP operating system.

"It's an issue of margins and the profitability of the business.

"We don't set pricing through the channel. We only set the price we sell to the distributors and the rest depends on competition and market forces. New Zealand suffers from lack of volume so does not get the resulting economies of scale."

The brands culled by Renaissance are also represented by distributor Tech Pacific - in line with a preference by many United States vendors for dual distribution.

Mr Thompson said: "I don't believe the international model being applied to New Zealand with mass distribution, little differentiation and low margins is sustainable."

Sealcorp shut down its distribution operations this year, and several Australian IT distributors have also gone under in the past year.

Microsoft will continue to work with Renaissance to distribute products for the Apple platform.

Renaissance shares closed down 5c at 41c.