X marks the spot for IT Xchange

What happens when a product has been withdrawn from the market because of a refresh or model change?

The answer is really not much. The product is usually from a noted brand name vendor. It will still be factory sealed and is still very much an IT asset.

This little known business has been the cornerstone of IT Xchange Group of Markham, Ont. They act as a distributor of secondary market products, mainly from IBM (NYSE: IBM) and they have provided this service to resellers, system integrators, some end users and brokers since 1996.

Now the company is branching-out, both organically and through the acquisition of the U.S. business of Vernon Computer Source, an IT rental company that offers OEM demo pools and rent to own options on equipment. The organic part will be a solutions business that is focused on the SMB, Fortune 1000, IBM white space, federal sales, and professional services.

The key to this business, according to its new global vice-president, Dave Walsh, is how they operate together. IT Xchange can feed the solutions part of the business with plenty of end user opportunities since they supply non-current product to resellers. The solutions business can address customer needs with demo units, short term rentals and rent to own programs via Vernon and this piece connects back to the original company by bringing off rental units to the supply.

For example, one of Vernon’s best known clients is Boeing (NYSE: BA). They rent brand new laptops for testing on aircrafts. If the airplane has 180 seats they will have 180 laptops operating to see if it interferes with the plane’s radio frequencies. Those laptops are never again used but are perfectly fine for the channel to resell.

Oh, and don’t confuse non-current products with used products. Nothing IT Xchange carries is used; it’s all withdrawn from market products, sometimes just because a vendor does not want to spend any more marketing dollars on the product, Walsh said.

The company’s CEO and founder is Jeff McFarlane, a former member of the Top 40 under 40 club in Canada. McFarlane worked for the IT leasing company MFP and thought he could do better on his own. So he started the company at the ripe old age of 27.

For Walsh, the former Ingram Micro Canada and NEC Technologies executive left his marketing role at Edmonton’s Acrodex for IT Xchange because he was intrigued by the company’s holistic approach. His job is to leverage the strength of the three organizations and aggressively grow the company, which has been already growing at 25 per cent per year.

“The solutions area will be driven by the market and we’ll make sure we have the right technology in the right areas,” he said.

Currently, the IT Xchange Group is in seven countries with offices in Scotland, Australia and the Chinese gambling island of Macau. In Canada, the company has three offices: Ottawa, Oakville and Markham.

The solutions portion of the business is focused on the Ontario market, along with the U.S. eastern seaboard market. According to Walsh, the two-year-old solutions business will be rebranded shortly and is growing at 100 per cent per annum. The IT Xchange business is between 75 to 80 per cent of the business and mainly handles product from IBM and Lenovo.

“This business is deep in Lenovo and IBM and that will continue to run on its own in a niche distribution model, but I will tell you that Jeff McFarlane is aggressive and the rapid growth is a testament to that,” Walsh said.

Besides IBM and Lenovo, IT Xchange has other partnerships with VMWare (NYSE: VMW), Oracle (NASDAQ: ORCL), Brocade (NASDAQ: BRCD) and Microsoft (NASDAQ: MSFT) and is working on obtaining a partnership with Cisco Systems (NASDAQ: CSCO). Most of its business is in the mid-market at 100 seats and up. And the company has the ability to knock down $100,000 deals with frequencies because of how the organization is structured, says Walsh.

“A lot of VARs simply can not do that kind of volume,” he said.

Deals that involve 30 to 40 systems are not big enough for most resellers to make a profit from, but because of its distribution engine IT Xchange can. This isn’t to say the solutions group will sell non-current product. In fact it’s the opposite, Walsh says. The solutions area works with the major distributors for brand new equipment mostly, IBM and Lenovo.

“We can meet all of the needs of the market and our company goals with IBM and Lenovo. From a partnering perspective they’re more than a significant player and we have significant trust with them,” Walsh said.

Another aspect of IT Xchange’s business strategy is technology lifecycle management and server consolidation.

“If you (have) a mid-market opportunity we can offer end user take out with refreshed technology and have a home for the end of life product. It’s a great feeder system and we take that product and give you fair market value for it,” Walsh said.

IT Xchange also has environment services and can destroy or recycle products for customers through its partner, Noranda Recycling. The company also has a refinishing paint shop.

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Jim Love, Chief Content Officer, IT World Canada

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Paolo Del Nibletto
Paolo Del Nibletto
Former editor of Computer Dealer News, covering Canada's IT channel community.

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