Increasing margins

I've recently wondered how DDR are increasing PBT margins and more than this, wondered why directors have loaded up at such high multiples for what is a very low margin business.

After reading this article (https://www.arnnet.com.au/article/649761/how-cisco-latest-pivot-will-impact-australia/?fp=2&fpid=4) about Cisco and their move away from upfront sales to recurring 'as a service' revenues, it starts to make sense. These revenues are higher margin, as they can now afford to incentivize distributors accordingly:

"As an incentive, Cisco will pay 1.5 per cent higher rebates for partners making the transition into software and life-cycle sales, while a number of new bonus schemes will also heavily reward the channel for renewals."

The move from Cisco is very much in line with other hardware/software providers, moving toward a subscription model and away from having customers make capex heavy purchases. This is the basic premise of Cloud Computing, and we know how that's playing out.

Given DDR won global partner of the year from Cisco late last year (https://www.arnnet.com.au/article/668254/dicker-data-named-best-cisco-distributor-planet/?fp=2&fpid=1), it's likely they're well ahead of other disties in this area.

It seems the increased complexity in IT is allowing for higher value add in the distribution channel, and DDR are taking full advantage of this.


I do wonder if over time, the line between services vs distribution will be blurred, such that the likes of Data#3 start competing more directly with DDR rather than on the margin. It's likely already happening...