Cisco resellers to jump ship?

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Disgruntled Cisco resellers may be ready to jump ship, according to Enterasys managing director Gary Mitchell.

Mitchell said he had taken enquiries from several Cisco resellers, including one Gold Partner, which suggested all was not well within the large networking vendor's channel partner ranks.

“The great thing is there are a number of channel partners, particularly Cisco Silvers, who are finding the Cisco marketplace over-distributed and there are now opportunities to differentiate themselves with Enterasys starting to make a move in Australia,” he said.

“The challenge for Cisco partners is that with any opportunity that comes up there are up to 10 other partners all offering the same product.”

With so many partners offering the same product to the same customers, one of the only remaining differentiators was price.

Yet with vendors already putting the squeeze on margins, resellers had almost no room to move, Mitchell said. “If the Golds are having difficulties, what is it like for others?” he said.

Nick Verykios, managing director at networking integrator LAN Systems, said he had heard a rumour that Cisco was pushing margins down to one or two percent. “But that's total rubbish, because I know the process,” he said. Verykios said all vendors wanted their resellers and distributors to make money. Further, channel players could get around low margins by refusing to sell on to their own customers at that rate. “You must look at the whole business case...Can [resellers] make money? That's based on a whole heap of things, such as service, support and a profit approach-based relationship,” he said.

Verykios also added that reseller dissatisfaction in a slow market was pretty much business as usual and would vary, especially across a strong channel program such as Cisco's. “It happens all the time. It's not restricted to Cisco...It's not that you're only as good as your last deal--you're only as good as your next deal,” Verykios said.

Jonathan Klug, executive director at software and services distributor Professional Advantage, said Cisco resellers could “possibly” be somewhat dissatisfied at the lower end of the market focused on router-type products. “But if you're looking at higher-end security and bigger boxes, I don't think so,” he said. “[Whereas] the router business has become so commoditised that they're almost something you can buy at Harvey Norman.”

Klug said the large number of Cisco resellers was a sign of the vendor's success, although most resellers would like to corner part of the competitive market for themselves. “I don't fault Cisco for that,” he said. “You've got the same problem with HP.” Although the network gear market had opened out, Cisco product was still strong and a desirable offering, according to Klug.

“Everybody wants to sell Cisco, because it's a brand name like Microsoft but you don't have to explain yourself,” Klug said.

Enterasys' Mitchell said it had no plans to expand its channel on a large scale, but would consider taking on appropriate partners on a case by case basis. “We don't want to be over-distributed,” he said. “We don't have 150 sales representatives. I'm looking for a reseller who can bring sales leads to the party as well, and when next year comes up, we could have one or two Enterasys resellers and 10 Cisco partners.”

The company has two distributors--Avnet for its whole range and BlueSky Industries for its Dragon Intrusion Detection System for Managed Security Services Providers (MSSPs). This year will see “substantially more” money spent on marketing, Mitchell said, although he wouldn't say how much. “Our marketing focus will be spent with the channel doing programs for creating end-user demand as opposed to a more traditional model of vendor turning up on the doorstep and saying 'I've spent this money and got a whole bunch of leads for you',” he said.

Mitchell is expecting growth to ride on the July release of Enterasys' Matrix N-series line of switches and XSR routers. Enterasys has increased its revenue from intrusion detection five-fold in the last few months and believes security will be one of the main growth drivers for the coming year. “Although it started from a very low base,” Mitchell said.

Despite being fraught with financial problems, centring on the Asia Pacific operation last year, Mitchell claims the Australian operation went into the black in Q4.

In February, Enterasys globally reported a net loss of $US31.5 million on revenues of $US122.7 million for its third quarter ending 28 September--a slight improvement on a net loss of $US51.4 million for the previous quarter.

The $US31.5 million loss in Q3 included a net tax benefit of $US10.4 million, $US11.4 million for costs associated with the SEC investigation, internal review, shareholder litigation and incremental audit costs. There was also $US$10.7 spent on special charges related to restructuring costs and $US6.7 million related to the preferred stock dividend and redemption liability.

Cisco was not available for comment at time of going to press.

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