ADTRAN to Network VARs: Hardware Profit Margins Await You

Time for a surprising reality check from The VAR Guy. Conventional wisdom says there’s no margin left for VARs in hardware sales. But Pulse Inc. — a $10 million solutions provider that works closely with ADTRAN Inc. — strongly disagrees. Here’s why.

Pulse doesn’t have much interest in the services space. Instead, the company drives much of its business by reselling ADTRAN’s networking gear and collecting the profit margins, according to Pulse President Salvatore Costantino.

Pulse isn’t alone. ADTRAN has attracted more than 500 new solutions providers to the company’s partner program this year, and that one-year increase should approach 600 new partners before the end of 2008, predicts Ted Cole, VP of ADTRAN’s US channel for enterprise sales.

Secret Sauce

So, why are partners flocking to ADTRAN? Here are a few thoughts:

• Product margins: A few folks tell The VAR Guy that top ADTRAN solutions providers can make 20% (or more…) margin on the company’s VoIP, Ethernet and routing hardware.
• Filling A Niche: ADTRAN’s product positioning is pretty simple. The company doesn’t intend to compete head-on with Cisco in the network core. Instead, ADTRAN targets small and midsize businesses, and promotes edge networking gear that typically costs less than Cisco’s products. (Ironically, ADTRAN is succeeding where 3Com failed miserably in the late 1990s.)
• Southern Hospitality: Visit ADTRAN’s headquarters in Huntsville, Alabama, and you get a feel for a company that focuses all of its efforts on customer service. And all of ADTRAN’s business customers essentially are VARs.
• Purely Channel: That’s right. ADTRAN has no direct sales force, and ADTRAN only works through partners to sell into enterprises.
• Managed Services Upsell: Cole says roughly 40 percent of ADTRAN’s US enterprise sales involve managed service providers (MSPs). The VAR Guy is tempted to say more about the MSP topic, but his lips are sealed — at least for a few more weeks.

Let’s Not Bury Cisco

Okay, so ADTRAN is having success in the SMB space, and CEO Tom Stanton says the weak economy has forced businesses to seek lower-cost alternatives to Cisco.

But even the ADTRAN folks keep the company’s market position in perspective. Cole notes that ADTRAN is roughly one-eightieth (1/80) the size of Cisco.

Anyone who predicts ADTRAN can somehow topple Cisco needs to double-check their facts (and find new industry sources).

However, it’s clear ADTRAN has carved out a niche for itself. Why else would nearly 600 new solutions providers jump on the ADTRAN bandwagon this year?

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