Article

Avnet bids for IT distribution might with Bell Micro buy

Barb Darrow

In a sign of IT distribution consolidation, Avnet Inc. is buying Bell Microproducts Inc. for its two tier distribution business and will explore "strategic alternatives" for Bell Micro's single-tier reselling

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business.

Bell Micro, San Jose, bills itself as a "value-added distributor" of high-tech components and services. It has an especially strong practice in storage systems, as well as servers. Phoenix-based Avnet is a big distributor of electronic components, storage and subsystems. Its Avnet Technology Solutions unit sells more than $7 billion worth of technology "solutions" to VARs in more specialized vertical markets including healthcare.

"Just as there has been consolidation, merger and acquisition mania occurring on the vendor/producer side as well as [among] services providers, why not in the distribution channel? It's been some time since we have seen any significant consolidation of distributors while some smaller ones have become larger, now the question should be who will be next?" said Greg Schulz, senior analyst with the Server and StorageIO Group.

VARs tended to view the $252 million all-cash deal through their own lens. Some in the Sun Microsystems camp -- where Avnet had a strong presence-- said Avnet needed to do something in the wake of Oracle's acquisition of Sun and the combined company's direct-sales focus. Verbiage out of Oracle headquarters has been pretty clear that there is not much room for value-added distribution in the Sun hardware world.

This is "a move to reduce dependence on Sun in wake of Oracle," said one long-time channel watcher. "The master disties got pretty much left out in the cold in that one. This is very strategic and Arrow has got to be freaking out."

Avnet and Arrow compete heavily on many fronts and some think this deal will drive similar moves.

"Arrow became who they are via similar acquisitions in the past with Moca and Pioneer etc, thus with Avnet shoring up their business, I would expect Arrow to be involved in some type of deal, the question is with whom," Shulz said.

He confirmed that the Oracle-Sun deal is affecting everyone in the old Sun ecosystem. Those parties must now transition their business to get closer to Oracle and in turn, Oracle needs to leverage those relationships, he added.

Avnet chairman and CEO Roy Vallee pooh-poohed any notion that the Sun-Oracle move motivated Avnet to diversify its vendor lineup.

"We wouldn't strike a deal to buy Bell Micro because of what's happening with other suppliers but on a separate note, the ongoing dialogue with senior management at Oracle is actually quite constructive and quite positive."

He acknowledged that Oracle will directly fulfill more Sun hardware orders to its largest customers and that will lead to some downside. But "to offset that, Oracle no longer wants to deal on a direct basis with any resellers. [Sun] VARs will revert to distribution. In addition, [Oracle] stated a goal to consolidate the number of distributors they want to deal with globally and that helps us. On balance we're actually positive about the events in the Oracle-Sun world."

Vallee and Bell Micro chairman Don Bell, who said he will stay on with the company, said the acquisition makes Avnet a leader in data center solutions. Bell Micro was particularly strong in storage systems including solid-state storage components.

The proposed deal has been approved by both companies' boards and now must pass muster with Bell Micro shareholders and then the regulatory agencies. He expects it to close in 60 to 120 days.

Let us know what you think about the story; email Barbara Darrow, Senior News Director at bdarrow@techtarget.com, or follow us on twitter.


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