Triumph over technology

Trade

Pictured: ICS Europe managing director Karl Doran is a man of many parts

Working in the IT industry is like watching an episode of Top Gear on TV: the stars waffle on about Porsches, Aston Martins and Zondas while the rest of us chug around in Fords, Toyotas and Volkswagens. This is the reality of many IT departments’ needs. The IT press and websites glorify the latest and greatest hardware – but what if you need to upgrade the performance of a perfectly adequate server, purchased at vast expense a few years ago and which even common sense tells you is an asset that needs to be sweated for the near future rather than replaced?

You may find that your venerable hardware is not even compatible with the newest disk drives or memory modules. Or that the main distributors no longer stock the critical item that you need because it has “gone end of life”.

It is to serve just such requirements that Dublin-based ICS Europe maintains an important niche in the market. It specialises in providing products that may be just off the leading edge of the innovation cycle but which nevertheless fulfil a cost-effective need to keep an IT department’s installed base up to the required speed. ICS Europe simplifies the job of finding and procuring ‘spare parts’, as opposed to component upgrades, for the local Irish channel.

“We sell spare parts up to field-replacement unit (FRU) level,” says ICS Europe managing director Karl Doran. “We are the only authorised HP/Compaq parts reseller in Ireland and we are also an independent parts distributor for most major manufactures, including Dell, Lenovo, IBM, Fujitsu, Sun, Lexmark, Epson, Cisco, 3Com and Seagate.”

ICS Europe is now a fully Irish-owned company, having bought out the Irish section of the business, which comprised about 25% of the business, from its US-based parent ICS at the end of 2007.

ICS started off as a specialist distributor in the disk drive market, and that focus is maintained by the US company. It is still disk-drive maker Seagate’s largest partner in the US for excess drives and factory refurbished products, according to Doran.

ICS positioned itself to act as a welcome complement to the activities of the large disk drive manufacturers and their channel partners. It sourced product in two ways: factory refurbished products and excess inventory. In the former case, a defective disk drive that was returned by a customer as part of a warranty arrangement would be refurbished by Seagate and released back to ICS under a new warranty. In the latter case, ICS would take advantage of the fast-moving nature of the disk-drive product business by taking over end of life products from the big distributors.

Doran explains. “Product life cycles in the IT industry are short and getting shorter. The manufacturers and the big distributors want to concentrate on promoting and selling the newest products, so when a disk drive is superseded by a new model, the big distributors can return a percentage of their unsold inventory to the manufacturer and gain a credit against their next purchase. The disk drive maker will then keep back a proportion of these drives for warranty replacement purposes but will sell on the excess to other companies, such as ICS.”

As an example of the volume of products that can be returned in this way, Doran says that ICS now buys so many drives from Seagate that is has a greater purchasing power in this sector than Toshiba America, one of the largest suppliers of notebook computers.

ICS operates with a longer warranty arrangement than the front-line distributors. Typically, such companies will offer a 1-year warranty, but ICS avails of warranties from the manufacturer of as much as five years. This reflects the slower pace of change of the market into which it sells its product.

Although it is now independently owned and operates completely separately from the company in the US, the Irish-based ICS Europe retains close links with its former parent. “We have a franchise to supply to Europe the parts they have in their inventory,” says Doran. “We can log on to their system, see all of their inventory and fulfil any requests from Europe for their products. We have half a million euro worth of spare parts in Dublin, but the US company has $10m worth of spare parts that we can ship into Ireland within two days.”

The independence gives ICS Europe the freedom to branch out into areas beyond the disk drive market. In fact, Doran says that drives now only account for about 30% of the company’s business. “The disk drive market has gone the same way as the memory market,” he says. “Drives are getting bigger and cheaper at the same time. Margins are very tight.”

Spare parts for printers now account for an increasing share of ICS Europe’s business, between 30 and 35% at the moment, according to Doran. It is a widely held truism of the industry that most of the money made by printer manufacturers comes not from the sale of the hardware itself but from the ongoing sales of consumables such as ink and toner cartridges. Doran insists that the two sectors are largely separate.

“We supply maintenance kits that allow customers to continue to use a printer rather than have to buy a new one,” he says. “We’re not in the consumables business. The only possible grey area would be a fuser unit that we sell for some models. That’s made up of the fuser and some pickup-and-feed components. As moving parts, they tend to need replacement after some time, so they are classified as spare parts rather than consumables.”

Doran says that the printer market is a natural fit for ICS Europe’s business because of the reluctance of companies to replace their printers at the same rate as their PCs. “The printer is often the last piece of hardware to be replaced,” he says. “Many people may replace their desktops or notebooks every three years but some printers typically stay on site for five years.” This is despite the fact that the cost of replacing an entire printer is similar to the cost of replacing a fuser unit.

Doran says that, typically, his company supplies such parts via maintenance services companies that would have contracts to service an end user’s equipment. In that way the replacement part would probably be made available to the end user as part of the overall ‘peace of mind service’ that it has bought from the maintenance company.

The vast majority of ICS Europe’s business is supplied via channel partners, i.e., resellers and maintenance companies that deal directly with end users. The only exception to this is the HP parts business. Doran explains that, as the authorised parts reseller for HP in Ireland, his firm is obliged to take calls from end users inquiring about spare parts.

“But we price the parts so that the end user can buy them cheaper if they go through one of the big resellers,” he insists. “We are not trying to undercut the channel.” On the contrary, ICS Europe bases its business on helping the channel to source necessary products as accurately and efficiently as possible. It manages the inventory of older products so that it can fulfil requests for spare parts that end users make of their resellers and distributors.

“We also offer an outsourcing service for ‘hard-to-find’ spare parts, option and upgrades,” says Doran. “We have a strategic vendor alliance programme that allows us to represent global product specialists. We upload all our stock and strategic vendors’ stock every morning to our website, www.icseurope.eu, so that our customers can search hundreds of thousands parts, options and upgrade listing to see if they are available through ICS Europe.”

Thanks to this ability to source rare parts, ICS Europe continues to service a sizable market on the continent. About 35% of its business comes from Europe with the rest coming from the domestic Irish market.

With the doom and gloom predicted for the Irish economy in general, the spare parts business also has the advantage of being largely recession proof. “Generally the first thing to go in a recession is the IT budget,” says Doran. “So companies have to make do with their current installed base. They make sure the are covered by a ‘Break Fix’ service contract so demand for parts go up because the longer hardware is installed the more likely it is to fail. We have a very stable business and we do well in recessionary times.”

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