News Channel Life: 2003 Will Be Harder Than 2002. Sorry. By Keith Newman, ChannelMedia Editor

Sponsored by:

This is no longer the new economy and certainly not the Internet economy, it's the "show me" economy, according to Cisco's CEO John Chambers. Yet despite that I was surprised to see the Cisco reported an increase in profits despite of $990M vs. $660M in the year-ago period. And this despite a small drop off in sales. What does that tell you? It ain't easy out there but if you have a plan you can not only survive but thrive.

Whether you believe this or not, you should have an attitude that things will get tougher. War, economy, corporate malfeasance and a general tech malaise among IT decision makers does not make for a rosy outlook.

What to do…..Get tough, be aggressive and make things happen. Where else can you cut? How about your partners? Managing partners is time consuming, hence costly. Do you need all of those partners? Can you point to their benefits? Can you demonstrate the ROI of each partner? We are not talking black and white data in many cases but you should be able to quantify which of your partners are contributing and which one's are not. If you can't my first guess is that they are not contributing that much. My second guess if you don't what they are providing you probably won't miss them. Its time to rack and stack them - and I believe you need to do this on a regular basis not as a purely reactive measure to a market downturn.

On the plus side, you can move valuable internal resources (people, dollars) to more productive partners (obviously) but you can also get a higher level of strategic relationship with those who are really contribute. And look what's coming up…it's VARVision and the System Builder Summit the perfect place to identify new partners, sit down and have meaningful evaluations with current partners, Its not too late...Check us out at www.varvision.com or www.visionevents.com.

Keith Newman is the Editor and Publisher of ChannelMedia - the SMB Edition. We want to know your thoughts on the current market environment, how you manage your channel for maximum effectiveness? This newsletter is free, courtesy of Vision Events and we are looking for contributors and readers. If you are interested in contributing or sponsoring an article, please contact kanewman@sbcglobal.net.

No, its not the latest comic book hero heading for the big screen, Centrino is the name that Intel has given its wireless technology that it will be encouraging its hardware OEMs to include in their products, and the name it will be trying to push into the publics mind as well. The naming represents a break from Intel tradition. In the past the company has pushed its microprocessors, such as the Pentium or Itanium, as the key ingredient inside of a computer. With Centrino the company will be pushing an entire technology, including microprocessor, chipset and software. The initial Centrino push will center on the company's Pentium-M microprocessors formerly known by its code name of Banias, the first in Intel's history that was designed specifically for a market segment. The chip, which is claimed to have a variety of features designed specifically for the notebook and portable market is expected to be unveiled in March. But that is just part of the picture. Another key component will be the 802.11 wireless features that will come with its Calexico chipset, however that has been delayed for some time due to development and regulatory issues, and is not expected now until the second half of the year at the earliest. Intel will not just be dropping the Centrino name on the market, it has developed a new logo and plans a marketing and advertising campaign that is expected to cost upwards to $300m to help establish the technology in the market's consciousness. An advantage for hardware OEMs that adopt the technology is that Intel will do all of the testing and validation to ensure that the wireless features all work together. However, currently many hardware companies buy their wireless chipsets from other vendors and Centrino is an all or nothing proposition, They have to use the microprocessor, chipset and software to use the Centrino name. The can purchase any individual component they wish, but only the total package gets the name, and the marketing push. That push will be needed because there is a lot of room for confusion. While Intel will start pushing its Pentium-M as part of the package, it might be difficult for the average consumer to realize that they are not buying a Pentium 4-M, which is a horse of a different color. While the Pentium-M will have a clear-cut advantage in areas such as battery life, the Pentium 4- M will be the performance leader by a wide margin.

The Pentium-M chip is expected to operate at a top speed of 1.4Ghz initially, while the Pentium 4-M is already running at 2.2Ghz and is expected to jump to 2.4Ghz in the next few weeks. However Intel claims that changes in its chip design will help close the actual performance when compared using standard benchmarks. Also Intel is expected to fade out the Pentium 4 M processor, but not in the near future

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NEWS Network Associates introduces "Black Box" for Network Security By ChannelMedia Staff

Sponsored by:

Chris Thompson, Vice President of Product Marketing, Network Associates said the company has developed and recently launched a "Black Box" - one of the most unique and groundbreaking products for the network security marketplace.

Essentially, the product, called the S™ Security Forensics Infinistream, continuously records data and helps security and network managers reconstruct and isolate problems and determine what went wrong in a "security event" and then take appropriate actions to fix the problems in near real time.

There has never been a "black box solution"" and the ability to immediately take action from the results. "This solution is unmatched in terms of power and capacity," said Thompson.

With a solution like the Infinistream Security Forensics, Thompson suggests, VAR's and System Builders can bring together the full set of solutions (i.e. firewalls, filtering systems, anti-spam and virus software) and package them either as products or as a complete solution that includes service and support.

Thompson expects the product to sell well. Early trials have exceeded expectations, he claims, and the there are many benefits to selling a Network Forensics Analysis Tool, including:

• Real time collection of all packets traversing the network
• On-line data storage for mining purposes and detailed security analysis
• Proof of events that intrusion detection and firewall tools identify
• Preserves a long-term record of network traffic
• Quick trouble spot analysis

List price of the product is approximately $85,000 and early market adopters will include law and government agencies, service providers, carriers and financial service companies. The product will be available in Q3.

NEWS

Channel Digest

ACCPAC International, a subsidiary of Computer Associates International, Inc. announced an agreement whereby ACCPAC will distribute IBM's DB2 Universal Database(tm) as a standard component of its ACCPAC Advantage Series(tm) and ACCPAC Pro Series(tm) accounting software and other end-to-end business management applications. ACCPAC Advantage Series and ACCPAC Pro Series are designed to address the accounting needs of small and mid-size businesses. Both serve as a foundation for ACCPAC's integrated suite of end-to-end business management applications. ACCPAC® will begin offering DB2® immediately with ACCPAC Advantage Series 5.1 Enterprise, Corporate, Small Business, and Discovery Editions. The offering will include the DB2 database and 3 user licenses, with the ability to purchase additional licenses from ACCPAC. ACCPAC will offer the DB2 database option for Pro Series and other ACCPAC end-to-end offerings in future versions.

"With over 60 million DB2 users in 400,000 companies worldwide, DB2 is a proven, world-class database with impressive performance capabilities," said ACCPAC President and CEO David Hood. "Delivering DB2 with our applications provides tremendous value to our customers and our global reseller network, offering a powerful and affordable platform on which to deploy a scalable business management system-and the freedom to do so in either a Linux® or Windows® environment."

"We're excited that ACCPAC has selected DB2 as their database of choice and recognizes the value that DB2 brings to small and mid-size business customers," said Scott Handy, Director, Linux Solutions Marketing, at IBM. "The combination of IBM's market share leading database software and ACCPAC's end-to-end suite of business applications is an outstanding offering for companies focused on managing their business, not their technology."

GTSI reported that sales for 2002 increased 19.3% to an annual record $934.7 million from $783.5 million in 2001, due to GTSI's growing capabilities in providing value-added IT solutions contracts to its federal, state and local government customers. Gross margin for 2002 remained stable at 8.3% from last year. Operating income for the year increased 199.3% to $11.1 million from $3.7 million last year. Net income for 2002 increased 112.5% to $9.5 million, or $1.04 per diluted share, from net income of $4.5 million, or $.50 per diluted share, last year. Sales for the fourth quarter of 2002 were $280.1 million versus $280.0 million last year. Gross margin in the fourth quarter of 2002 increased to 9.2% from 8.3% for the same period last year. Operating income for the fourth quarter was $7.4 million as compared to $7.8 million from the same period one year ago. Net income for the fourth quarter was $5.1 million, or $.54 per diluted share, versus net income of $5.0 million, or $.54 per diluted share, for the same period last year.

Operating expenses increased by 8.3% from $61.4 million in 2001 to $66.5 million in 2002, with a 19.3% increase in revenue. Fourth quarter net operating expenses increased by 17.9% from $15.5 million to $18.3 million. Dendy Young, Chairman and Chief Executive Officer of GTSI, commented on 2002 results, "We are very pleased with the strong financial performance in 2002, which is a tribute to our hard-working and dedicated employees.

"In 2002, we continued to make extensive investments in GTSI. The purchasing habits of our government customers create a seasonality to our business, resulting in the first and second calendar quarters typically producing weaker results than the third and fourth calendar quarters. Because we believe that resources drive sales, we are investing in new management and sales personnel, facilities and systems. We believe that these investments will allow us to capitalize on the significant increase in orders anticipated during the third and fourth quarter of 2003, as well as the substantial opportunities that exist in the government marketplace in the years to come."

Young concluded, "GTSI's focus on driving sales and building for the future this past year is evident in our strong 2002 financial results. In 2002, GTSI won several new contracts, including those with the Department of State, National Institutes of Health, U. S. Department of Veterans Affairs, the U.S. Courts and the U.S. Air Force.

"Our government customers are more committed than ever to advanced uses of technology. GTSI is solely committed to this cause, combining our reputation as a Trusted Partner in the government with access to multi-vendor solutions, the expertise of our Technology Teams and unmatched industry tenure. In 2003 we are committing all necessary resources to assist the agencies that comprise the new Department of Homeland Security; GTSI currently serves each of the new department's 22 component agencies. We continue to have great confidence in the long-term outlook of GTSI's business and marketplace."

Tom Mutryn, GTSI's Senior Vice President and Chief Financial Officer, stated, "A solid financial foundation and prudent fiscal management will remain hallmarks of GTSI's operations in 2003 and allow us to continue to work proactively to develop solutions that are specific to the requirements of our government customers. Regarding our fourth quarter results, while revenue was essentially even with 2002, gross shipments increased by 10%, reflecting continued growth. Our gross margin percentage increase to 9.2% was driven by one-time favorable product pricing and by a favorable product mix."

GTSI's backlog on December 31, 2002 was $82.5 million, a 21.9% increase from December 31, 2001. While there can be no assurances, based on the support of this backlog, current business conditions and expectations, management is working towards breakeven results in the first quarter of 2003 on 10 to 15% more revenues than the first quarter of 2002. A variety of factors, however, could affect these expectations positively or negatively, including the effect of military action on government IT spending and the status of the federal IT budget for federal fiscal year 2003.

Sapient said service revenues for the quarter ended December 31, 2002 were $41.9 million, a decline of 3% from service revenues of $43.0 million for the third quarter of 2002, and a 33% decrease from the fourth quarter of 2001. Gross revenues were $43.9 million for the three months ended December 31, 2002, which included $2.0 million of reimbursable expenses. In connection with the company's closure of its business in Japan announced in October 2002, all related current and prior period operating results have been classified as discontinued operations. Below are results stated in both pro forma and GAAP formats. For the year, the company reported consolidated service revenues of $173.8 million, a 47% decrease over service revenues of $325.1 million for 2001. Pro forma net loss for 2002 was $41.8 million, or $0.33 per diluted share, compared to pro forma net loss of $50.9 million, or $0.41 per diluted share, for the year ended 2001. Net loss from continuing operations on a US GAAP basis for the year totaled $222.2 million, or $1.78 per diluted share, compared to net loss of $185.5 million, or $1.49 per diluted share, for the year ended 2001.

"In a tough market by any standard, we are pleased to have seen three consecutive quarters of stable revenue as well as significant improvement in our ongoing operating costs," said Jerry A. Greenberg, Sapient's co-chairman and co-chief executive officer. "Our performance can be largely attributed to the acceptance of our globally distributed delivery (GDD) model, which meets clients' desires to employ an offshore strategy. In the fourth quarter of 2002, 57% of our revenues came from engagements utilizing this model. GDD captures the value of offshore work while managing the associated risks through our unique combination of a proven, fixed-price approach coupled with industry, business process, and adoption management expertise."

During the fourth quarter of 2002, Sapient won assignments with many new and existing clients including Avis Europe, The Bank of New York, Blue Cross Blue Shield Association, British Petroleum, CareFirst, Energi E2, Fidelity International, General Motors Acceptance Corporation (GMAC), Harrah's Entertainment, Hilton International, Janus, Marriott International, Inc., National City, Nextel, Nissan North America, Inc., Novartis, Office of the Envoy (UK Government), Open University, Opodo, Rock-Tenn Company, Rohm and Haas Company, Royal Mail Group, Sequent Energy Management, Star Alliance, T-Online, U.S. Marine Corps, Volkswagen, and Winslow Indian Healthcare Center.

PC Connection, Inc. (NASDAQ: PCCC), a leading direct marketer of information technology (IT) products and solutions, today announced results for the quarter and year ended December 31, 2002. Net sales for the three months ended December 31, 2002 increased by $48.6 million, or 18%, to $322.2 million from $273.6 million for the three months ended December 31, 2001. Net income for the quarter was $2.9 million, or $.12 per share, compared to $1.4 million, or $0.06 per share for the three months ended December 31, 2001.

Net sales for the year ended December 31, 2002 were $1.19 billion, compared to $1.19 billion for the corresponding period a year ago. Net income for the year ended December 31, 2002 was $3.2 million, or $.13 per share, compared to net income of $7.4 million, or $.30 per share for the corresponding period a year ago.

Excluding MoreDirect, Inc., the Company's most recent acquisition, net sales for the quarter were $252 million, compared to $273.6 million for the three months ended December 31, 2001. Earnings per share for the quarter, excluding the MoreDirect operations, were $.02 per share compared to $.06 per share for the same period a year ago. MoreDirect's sales for the fourth quarter were $69.9 million, flat with the third quarter, but up 38% on a pro forma basis from the prior year fourth quarter. MoreDirect was acquired by PC Connection, Inc. in April 2002.

Patricia Gallup, Chief Executive Officer of PC Connection, Inc., said, "Our fourth quarter results were stronger than we expected given the current economic environment. Excluding the operations of MoreDirect, net sales for the month of December grew by 5% over a year ago. Our positive finish in 2002 has encouraged us to be cautiously optimistic that, increasingly, there will be renewed demand in 2003 for the products and services PC Connection provides."

As of December 31, 2002, the number of Outbound Sales Account Managers for all operating segments totaled 479. This compares to 464 as of December 31, 2001, and 511 at September 30, 2002. Average order size for the three months ended December 31, 2002 was $1,135 compared to $1,061 in the corresponding period a year ago, and $1,323 in the three months ended September 30, 2002.

Ken Koppel, President of PC Connection, Inc., said, "We are pleased that the average Sales Account Manager tenure in our small- and medium-sized business (SMB) segment increased over the past year from 21 months to 25 months. In addition, the investments we made in building a new Internet Business Account (IBA) program began to produce results in the fourth quarter of 2002. Excluding MoreDirect, net sales for IBAs grew sequentially over the third quarter of 2002 by 32% and increased over the fourth quarter of last year by 78%. The number of IBA users as of December 31, 2002 expanded to 35,416, compared to 22,192 as of September 30, 2002."

Mr. Koppel added, "Growth in average tenure, along with enhancements to our Internet Business Account program, continue to be among our top initiatives to increase sales productivity. Over the past year, sales productivity for the SMB segment increased on an annualized basis by 12.6%, from $1.75 million in the fourth quarter of 2001, to $1.97 million in the fourth quarter of 2002. Higher sales productivity is the key to leveraging our expense structure and driving future profitability improvements."

Desktop computers and servers accounted for 15.9% of net sales in the fourth quarter of 2002, compared to 11.8% for the corresponding period a year ago. Notebook computers accounted for 14.3% of net sales in the fourth quarter of 2002 compared to 20.5% of net sales for the corresponding period a year ago. Computer systems average-selling prices decreased 4% in the fourth quarter compared to the corresponding period a year ago, and decreased 12% compared to the third quarter of 2002.

Gross profit margins, with and without MoreDirect, improved to 11.1% in the fourth quarter of 2002, compared to 10.9% for both the third quarter of 2002 and the fourth quarter of last year. Gross margins were higher due to improvement in product mix and selling margins. As stated in previous releases, the Company expects that its gross profit margin as a percentage of net sales may vary by quarter based upon vendor support programs, product mix, pricing strategies, market conditions and other factors.

Total selling, general and administrative expenses, as a percentage of sales, decreased to 9.7% in the fourth quarter of 2002, compared to 10.0% in the corresponding period a year ago. The Company expects that its SG&A, as a percentage of net sales, may vary by quarter depending on changes in sales volume, as well as the levels of continuing investments in key growth initiatives.

Patricia Gallup, Chief Executive Officer of PC Connection, Inc., concluded, "During the quarter, the Company grew sales and earnings, improved both profit and operating margins, and made progress in our efforts to enhance the productivity of our sales organizations. Our strong and experienced management team continues to be focused on improving the Company's results and building long-term value for our shareholders."

Cylink announced that Institutional Shareholder Services Inc. (ISS) -- the nation's leading independent proxy advisory firm -- has recommended that Cylink shareholders vote to approve the merger of Cylink with SafeNet, Inc. ISS is an independent expert organization that advises many of the nation's largest institutional investors on shareholder voting matters. In issuing its report on the proposed merger between Cylink and SafeNet ISS said, "Based on the market premium, the fairness opinion rendered by First Analysis, and the potential strategic synergies, we believe the merger agreement warrants shareholder support." In addition, the ISS analysis stated that the merger of the two companies would:

Digitas reported fee revenue for the fourth quarter of 2002 of $51.4 million, compared with $47.0 million for the fourth quarter of 2001. Total revenue, including reimbursable pass-through expenses, was $92.3 million for the fourth quarter of 2002, compared to $66.6 million for the fourth quarter of 2001. The company reported net income of $1.7 million, or $0.03 per share, for the fourth quarter of 2002, as compared to a net loss of $6.3 million, or $0.10 per share, in the prior year period. Pro forma cash earnings(1) were $4.1 million, or $0.06 per diluted share, for the fourth quarter of 2002, as compared to pro forma cash earnings of $1.0 million, or $0.02 per diluted share, for the fourth quarter of 2001. EBITDA (earnings before interest, taxes, depreciation, and amortization) was $6.7 million for the fourth quarter of 2002, as compared to $4.4 million for the fourth quarter of 2001. The company's cash balance at December 31, 2002, was $68.8 million, as compared to $46.5 million at December 31, 2001. The company also reported that it repurchased 335,000 shares of its common stock, at an average price of $2.76 per share, during the fourth quarter of 2002. David Kenny, Chairman and Chief Executive Officer of Digitas, said, "Relationship marketing is increasingly important to our clients' success, which is why we believe they continue to shift marketing spending toward the services where we excel. Even in a difficult and uncertain environment, Digitas has executed well for both our clients and our investors."

SimpleTech, a technology solutions provider offering products based on DRAM, SRAM and Flash memory technologies, today announced its financial results for the fourth quarter and the year ended December 31, 2002.

Revenues for the fourth quarter of 2002 were $45.8 million, an increase of 25% from $36.5 million for the third quarter of 2002 and an increase of 29% from $35.6 million for the fourth quarter of 2001. Net income for the fourth quarter of 2002 was $153,000 including approximately $600,000 of tax credits. This is an improvement from a net loss for the third quarter of 2002 of $1.1 million. For the fourth quarter of 2002, earnings per share were flat at $0.00, compared with a loss per share of $0.03 for the third quarter of 2002. Fiscal year 2002 revenues were $176.5 million, an increase of 7% from $164.2 million for 2002. Net loss for 2002 was $1.3 million. This compares with net income of $2.3 million for 2001. Loss per share was $0.03 for fiscal year 2002, compared to earnings per share of $0.06 for fiscal year 2001. On a year-over-year basis our unit shipments increased from approximately 2.9 million for fiscal year 2001 to approximately 3.6 million for fiscal year 2002.

ZoneLabs a leading creator of endpoint security solutions, today announced the appointment of David Batista to vice president of sales and services. Mr. Batista brings to Zone Labs a wealth of technology and enterprise sales expertise that spans over 25 years. Zone Labs chose Mr. Batista to manage and further expand sales for the company's award-winning enterprise security solution, Zone Labs Integrity(TM). Most recently, Mr. Batista led sales at authentication and security infrastructure provider Arcot Systems. At Arcot, he drove major development contracts with top credit card providers, as well as lead strategic deals with key financial institutions worldwide. Prior to Arcot, Mr. Batista ran Magex Ltd.'s field operations as well as served on the board of directors for the Digital Rights Management (DRM) provider. Mr. Batista's previous professional accomplishments demonstrate a history of considerable revenue growth at brand-name technology solutions vendors. During his years at Gateway 2000, Lexis-Nexis Inc. and Novell Inc., he helped to significantly grow profits.

"I am pleased to have David as part of the Zone Labs team," said Irfan Salim, president and chief operating officer, Zone Labs. "His knowledge of security software, experience developing enterprise sales teams and programs, as well as his background in both large and small organizations will greatly enhance our efforts to expand Zone Labs' enterprise business."

Corio, a leading enterprise application service provider, today reported financial results for the quarter and year ended December 31, 2002. Total revenue for the fourth quarter of 2002 was $17.8 million, an increase of 36% from $13.0 million for the fourth quarter of 2001. Application management services revenue for the fourth quarter of 2002 was $15.1 million, representing a 61% increase from the prior quarter and a 62% increase from $9.3 million for the fourth quarter of 2001.

EBITDA (earnings before interest, taxes, depreciation and amortization) for the fourth quarter of 2002 was a loss of $4.4 million, or $0.08 per share. These results compare to an EBITDA loss of $8.1 million, or $0.16 per share for the comparable period last year. Net loss for the fourth quarter of 2002 was $8.8 million, or $0.16 per share, compared with a net loss of $13.8 million, or $0.27 per share, for the comparable period last year. As of December 31, 2002, the total of Corio's cash, cash equivalents, restricted cash and short-term investments was $51.7 million compared to $51.8 million at September 30, 2002. Cash generated by operations during the fourth quarter of 2002 was $2.0 million, compared with cash used in operations of $3.9 million during the quarter ended September 30, 2002. "We are very pleased to announce record revenue and strong growth in our core applications management business," said George Kadifa, chairman, president and CEO at Corio. "Furthermore, we have successfully completed the integration of Qwest's ASP business into our operations. We have maintained a strong cash balance, and our path to profitability remains on track." Total revenue for the year ended December 31, 2002 was $56.1 million, an increase of 9% from $51.6 million for the prior year. Application management services revenue was $43.6 million, a 19% increase from $36.7 million for the prior year. EBITDA for the year ended December 31, 2002 was a loss of $21.7 million, or $0.41 per share. These results compare to an EBITDA loss of $46.2 million, or $0.92 per share for the comparable period last year. Net loss for the year ended December 31, 2002 was $34.8 million, or $0.66 per share, compared with a net loss of $63.9 million, or $1.27 per share, for the comparable period last year. Revenue from customer contracts acquired as part of the September 2002 acquisition of Qwest's ASP business was $8.7 million in the fourth quarter of 2002 and $9.2 million for fiscal year 2002.

Digital River reported revenue of $21.5 million for the quarter ended December 31, 2002. This represents a quarterly year-over-year increase of 21 percent from revenue of $17.7 million in the fourth quarter of 2001, and a 14 percent increase from revenue of $18.9 million in the third quarter of 2002. Net income, prior to the amortization of acquisition-related expenses, was $4.5 million, or $0.15 per share, in the fourth quarter. The fourth quarter performance was an $0.11 per share improvement from earnings per share of $0.04, prior to the amortization of intangibles and other acquisition-related expenses, in the fourth quarter of 2001. Digital River's performance marks its second quarter of net income profitability as calculated by U.S. Generally Accepted Accounting Principles (GAAP). In the fourth quarter, net income totaled $3.3 million, or $0.11 per share, on a GAAP basis. This compares to a net loss of $3.5 million or $0.14 per share in the same period last year and net income of $98,000 in the third quarter of 2002.

"I'm excited to say that in 2002 we substantially grew revenue, enhanced the financial strength of the company and continued to solidify our leadership position in the outsourced e-commerce market," said Joel Ronning, Digital River's CEO. "We not only exceeded revenue and EPS expectations in the fourth quarter, but we emerged from 2002 with a strong cash position and as a profitable business on a GAAP basis. We believe we are one of only a handful of large public Internet companies that can claim profitability on this basis - and clearly, profitability is a key benchmark of success. While we were able to achieve numerous financial milestones and increase operational efficiencies in 2002, we are looking forward to an even stronger 2003."

Digital River also reported that gross margins in the fourth quarter averaged 83.7 percent, an approximate 240 basis point improvement over last year's gross margin. This is also an approximate 250 basis point improvement from the third quarter. At December 31, 2002, cash and investments totaled $40.8 million, a $5.5 million increase from September 30, 2002, and a $9.1 million increase from December 31, 2001.

"Our strong fourth quarter performance affirms the scalability of our business model and the power of the e-commerce engine that we've created," said Ronning. "This is evidenced by significant improvement in key financial metrics, including a nearly 25 percent improvement in revenue per employee over 2001. We're successfully managing the size of our organization, leveraging our platform, adding new clients with minimal expense, and seeing the results fall to the bottom line. We believe that this shows the core strength of our business model and is a key competitive differentiator."

For the year ended December 31, 2002, revenue totaled $77.8 million, a nearly 35 percent increase from $57.8 million in 2001. In 2002, net income prior to the amortization of acquisition-related costs and litigation and other charges was $7.7 million, or $0.26 per share. In 2001, the net loss prior to the amortization of intangibles and other acquisition-related costs was $2.2 million, or $0.09 per share. The 2002 GAAP net loss totaled $0.5 million, or $0.02 per share, compared with a net loss of $19.2 million, or $0.79 per share in 2001.

InFocus announced fourth quarter revenues of $181.3 million, up 21 percent sequentially and down 6 percent year-over-year. Fourth quarter GAAP net loss was $48.1 million, compared to a net loss of $9.2 million in the third quarter and net income of $2.5 million in the fourth quarter of 2001. GAAP losses per share were ($1.22), compared to ($0.23) in the third quarter and earnings per share of $0.06 in the fourth quarter of 2001. Fully diluted shares outstanding were 39.3 million in Q4 2002 and Q3 2002, and 40.0 million in Q4 2001. Excluding the impact of restructuring expenses and non-recurring, non cash charges for the write-off of goodwill and a valuation allowance recorded for deferred tax assets, the fourth quarter pro-forma net loss was $2.3 million, compared to a net loss of $9.2 million in the third quarter and net income of $6.6 million in the fourth quarter of 2001. Pro-forma losses per share were ($0.06), compared to ($0.23) in the third quarter and earnings per share of $0.17 in the fourth quarter of 2001.

NEWS

System Builder Summit and VARVision Spring 2003:
Meeting the Expectations of Today's Vendors & Resellers

By Eric Lesonsky, Event Director, System Builder Summit and VARVision Spring 2003
March 16-19, 2003
Hyatt Regency Grand Cypress, Orlando, Florida


Customers in the IT channel are demanding more from events than ever before. Both vendors and resellers are asking their face-to-face marketing programs to meet a higher and stricter set of business criteria. Results have to be verifiable. ROI has to be measurable. This means a more successful return on their time, their money and (perhaps most importantly) their expectations.

Based on ongoing discussions with our clients, we're answering the call for higher ROI and even better business results. System Builder Summit and VARVision Spring 2003 will offer enhanced programs designed to help every customer meet their objectives and get more out of their face-to-face experience.

One customer demand we're certainly seeing in today's economy is that more vendors are looking to do real business at an event. In order to justify adding additional costs to a marketing budget already under tight scrutiny, vendors need events that deliver high quality, highly focused interaction. In response, System Builder Summit and VARVision have enhanced the ways that buyers and sellers can engage in substantive business interaction. New for this Spring is the improved format of the One-on-Ones between vendors and attendees, which will now be held in private meeting rooms as opposed to the vendor booths. This is the direct result of vendor feedback that even more in-depth business discussions can occur in a private meeting room environment. Complementing this are the Private Boardroom Appointments where vendors can meet with select groups of Resellers aligned with their vertical market objectives; World Premieres where vendors can get maximum visibility through a theatre-style presentation to a larger audience; and even more networking opportunities. This unique format provides exhibitors and attendees with clearly defined platforms to sit down across the table from one another. That's how business gets done.

Another challenge is audience delivery and quality. For vendors, the audience is the product, and that product must be of high quality and satisfy the exhibitor's marketing and sales objectives. We believe that our events are built to recruit and deliver a higher level of decision-maker than other technology events. The audience is by invitation only, and must meet strict criteria to ensure that decision-makers have significant buying power and sell into a cross-section of the most dynamic vertical markets. Furthermore, we make sure that Vendors know as much as possible about pre-registered attendees - company names, titles, purchase influence, level of buying power, markets served, and other key characteristics. This will help them plan on how to maximize their time, and schedule meetings with the buyers they most want to see.

Then there's the issue of delivering better content. For events to be truly valuable from an educational point of view, they must differentiate themselves from the omnipresent content available on the web or in print. This can only be accomplished by inviting the industry's best minds to come to events and present unique content to participants. In the world of technology, this means inviting the very best thought leaders to complement the traditional faculty of conference speakers, consultants and editors. We not only deliver top Gartner analysts covering the IT channel - we also give vendors the opportunity to meet one-on-one with these analysts to discuss both market trends and their own specific objectives.

Of course, to truly make the most of everyone's business opportunities, an event should keep the lines of communication open between exhibitors and attendees. This involves access to an interactive web site that enables meetings to be set up, information to be exchanged, and discussions to be fostered. The best events reflect a gathering point of buyer and seller communities that otherwise wouldn't have common ground to meet on. It is the responsibility of event companies to always be an open portal for partnerships. Our events provide robust online sites where vendors, System Builders and VARs can set up on-site appointments, preview the participants to better plan their time at the event, and follow up after the event to continue the business relationship.

Ultimately, in today's economy, events need to be more valuable, relevant and necessary than ever before. In tough times, it's only natural that customers - both exhibitors and attendees - demand more from their event experience. We certainly welcome the challenge. Next month in Orlando, we're ready to deliver even better ways for vendors and resellers to maximize their ROI and get down to business.

If you're interested in being part of System Builder Summit and VARVision Spring 2003, March 16-19, 2003, Hyatt Regency Grand Cypress in Orlando, Florida, please contact:
Mary Fogarty
603-471-4227
mary.fogarty@gartner.com

Michael McGoldrick
603-471-4225
michael.mcgoldrick@gartner.com

ACP - There's $$$ For You in Refurbished Products
Since 1976 Advanced Computer Products (ACP) has created new markets for excess, class B-goods and refurbished inventory. ACP has the ability to remarket your products into 3rd tier and offshore markets thereby protecting the integrity of your present distribution channels. Give us an opportunity to show you how we can solve your inventory problems. Whether finished goods, work in process or component parts we can help. ACP has all the inventory solutions! So when your inventory problems arise give ACP a call.

Contact us: (714) 558-8822 or email David Freeman dfreeman@acpsuperstore.com.

As large enterprises continue to hold pretty tight budgets, the midmarket has become the ideal place for solution providers to focus their attention. With an estimated 90,000 companies in North America alone, midsize businesses (MSBs) are providing many new customers for resellers and vendors alike. Although they may not have the large enterprise budgets, MSBs invest multimillion dollar IT budgets annually to solve business problems and to competitively differentiate themselves.

We spoke with Dawn Shultz, Gartner Vision Events' Director for Midsize Enterprise Summit (MES) about the opportunity that exists for Channel Media readers in the midmarket.

Q. I understand that you've been with the midsize enterprise event since its inception three years ago. Did your team have any idea then that the midmarket would be this hot?
A. We did know that it was an enormous opportunity, but let's just say we didn't realize it would become so 'popular'. We developed the event based on Gartner's research of the market so we knew that this was an untapped segment that was growing, and while viable, it was also not getting the focused attention of vendors and the channel.

Q. There seems to be a number of definitions out there of what constitutes "midmarket". Who exactly are you bringing to the table?
A. Gartner defines midsize businesses as those with 100 -1,000 employees and $50 million - $500 million in revenue, then we look at two subsegments within this as the characteristics and needs of businesses in the 100 - 499 employee range are very different from those in the higher range.

For the event, we broaden this definition slightly as we look at a number of factors in addition to 100+ employees and revenue size of $100 - 750 million. We qualify MSBs based on their IT spending level, we want a cross-section of companies in terms of industry sectors, and we only want the decision-makers who are normally a CIO, CTO, VP of IT, or IT Director.

Q. We know what's bringing companies like HP, JD Edwards, Microsoft, PeopleSoft and so forth to the midmarket and to your event today. But, what do you think the opportunity is for the channel?
A. Midsize businesses purchase technology and IT services from two main channels - directly from the vendor and from VARs. The upper end of the midmarket, those with more than 750 employees, tend to buy direct more consistently. But, Gartner's research points out that there are also specific types of products and services that MSBs buy more frequently via VARs and integrators vs. vendor direct regardless of company size. It's never black and white in the midmarket!

Q. Our readers are diverse - they may be experts in specific solutions, they may focus on particular vertical markets, or they may be regionally focused. How would an event like Midsize Enterprise Summit be beneficial?
A. The event has been a success for two main reasons. One is that we're the only event today bringing hundreds of prequalified midmarket IT executives face-to-face with vendors and VARs. And as I mentioned earlier, we look at a range of company sizes, a cross-section of vertical markets, and particular levels of IT spending to develop the audience list.

I can't stress enough how important it is to have access to extensive profiles on midsize businesses. They come in all shapes and sizes, and a $250 million business in one vertical sector may be small, while in another it's the high-end with a high-level of IT spending to keep them on top.

We also designed the event from the start as three regional events a year - East, West and Central. This allows VARs who are regionally focused to pick and choose, and also guarantees an intimate setting where they can do business with each and every person onsite.

Q. Even the largest VARs don't have the budgets that HP or Microsoft does. How do you suggest they compete for mindshare at the midmarket level and at an event like Midsize Enterprise Summit?
A. Like any other market, it's about the relationship. But this is particularly important to midsize businesses because they don't have the staff and other resources that large enterprises do. They're also very much driven by 'organizational pain points', and by that I mean that many of their buying decisions are driven by the need to comply fairly quickly with external demands. Both of these variables result in their relying on a trusted network of advisors, and relationship-based purchasing.

MES offers direct contact with hundreds of midmarket IT decision-makers in just 2.5 days, and there's a number of different ways that VARs can participate in the event. I guess the question is 'what would it take for a VAR to get in front of hundreds of already prequalified senior executives at midsize businesses'? I'm betting that MES is going to give a better return-on-investment of time, money, and staff.

Q. Can you tell me anything about your efforts to expand moving forward?
A. I think I'll have to save that for a formal announcement later in the year.

Do you have a midmarket question for Dawn? Reach her via e-mail at dawn.shultz@gartner.com or toll-free at 877.619.7956, x493. For details on Midsize Enterprise Summit, go to www.midsizeenterprise.com now.

Q & A Q&A with Sophos' Channel Manager, DeMarie Malnar

Q.Who is Sophos?
A. Sophos is a world leader in corporate anti-virus solutions. Sophos' increasingly rapid growth internationally is reflected in a user base of well over 20 million and revenues, which soared by nearly 50% in the year 2001-2002. Sophos products are sold and supported in over 150 countries through a global network of subsidiaries and partners.

Q.Why is Sophos technology a better choice for the corporate, education and government organization?
A. Sophos offers unlimited, round-the-clock support, which is included in all licenses. Sophos offers all- points protection especially removable media, centralized automation (single point control) with low impact on network traffic, broad platform support, and small virus identity updates, which can be constantly updated with Sophos' management tools. All solutions use the same engine on all platforms and its proprietary InterCheck architecture provides fast scanning speeds with minimal local overhead.

Q. How does Sophos plan to maintain a single product focus in a world of suites?
A. Through strategic partnerships, users benefit from a multi-vendor "suite" composed of several security solutions. Sophos has partnered with those offering firewalls, anti-spam, etc. and most industry analysts agree that a one-stop shop is not the answer any longer. Since Sophos has built a solid reputation for its dependable anti-virus solutions, as well as its ease of doing business within this industry, we are the clear partner choice for the best-of -breed security vendors.

Q. Why is Sophos a better Channel partner?
A. Sophos strengthens our Partner's business presence and provides the most profitable program in the anti-virus industry. We reinforce this with everything we do...from encouraging and compensating our inside sales force to support our partners -- to ensuring ample margins to those partners that make an investment becoming certified on the Sophos product line. Sophos knows that the support we provide partners is a key differentiator in the competitive anti-virus marketplace. Sophos partners can expect full access to a team of knowledgeable sales personnel and 24x7x365 support from a global technical support team with unsurpassed experience in the security field. And, of course, this support is free to all our Sophos partners. Contact Sophos at spp@sophos.com or at 888-SOPHOS-9 to learn more about partnership opportunities.

Q & A

Q&A with Hitachi Global Storage Technologies' CTO, John Best

For a different angle on our normal Q&A we cornered Dr. John Best, Chief Technologist of Hitachi Global Storage Technologies - a venture recently started as a result of the strategic combination of Hitachi and IBM's storage technology businesses. The company's vision is to enable users to fully engage in the digital lifestyle. It is a company that brings a customer-focused and full-service approach to solutions for the hard disk drive marketplace and is positioned to inspire and lead the evolution of storage component technologies. The company is committed to moving hard disk drive advancements beyond accepted limits in technology, application and marketplace.

Q. Can you give us an idea of the R&D impact of Hitachi Global Storage Technologies?
A. All of us are extremely excited about what this venture means to the hard drive industry and our ability to really move it forward. Coming into this, we at IBM always had enormous respect for the Hitachi team as being extremely strong technically. Now that we're all one it's very exciting because we have unmatched R&D capability. I look at the things that have come out of our respective research laboratories over the years and we've created a lot of the major innovations that have moved this industry forward. Now we're all together on one team -- it's very exciting. The energy and excitement thinking about what we can do going forward-is just tremendous.

Q. What are the most exciting future technology advances that this company can bring forward?
A. If we look at the fundamental technology itself, it's been moving forward at an incredible pace over the past couple of years. The underlying technology of storing bits on a square inch of a disk has been advancing at roughly 100 percent per year, doubling every year, which is faster than any other technology. It's going to slow down a little bit over the next few years, but the prospect is very, very bright as we continue forward at another factor of 50 or so of density... in the next 10 years. The fundamental technologies are getting much, much more difficult across a broad range. There are some fundamental changes in the physics, chemistry and electrical engineering that are required to build a drive. Our combined team definitely has the depth and breadth in all those technical areas. That's the key to really enable new products, better storage solutions, and to serve our customers.

Q. What is the importance of emerging markets for storage?
A. The advancement in technology that enables whole new applications for disk drives is extremely exciting. One where we've been in the forefront is developing the 1-inch disk drive, the Microdrive. We've seen many applications in digital still cameras and increasingly in digital audio devices like MP3 players. Now, with the 4 gigabit Microdrive, that we just announced, it's becoming realistic for digital video. You can just imagine the kinds of devices that it would enable-very compact, very high performance consumer devices. That's just the start of it. We're very excited about the whole consumer area, for example -- digital video and applications in the automotive arena, like navigation devices. At the same time, we continue to develop the manufacturing technologies, the efficiencies, to push the traditional hard drives to become more reliable, better performance and more efficient. While new applications and new technologies move forward, the underlying technologies continue to get more difficult. Our unmatched R&D strength will allow us to offer better storage solutions to our customers.

Q. Where do you see the most competition coming from for HDD technology?
A. For large scale, high-performance data storage there's really nothing to compete with hard drives for the foreseeable future. There are some exotic technologies that may, eventually, replace it if we look out about 10 years. And we have active programs focusing on those. But there's nothing on the immediate horizon. Hard drives are going to be the immediate mechanism for storage for quite some time to come.

Q. Can you give a specific example of how more advanced technology can help White Box Builders?
A. Look at the area of servers, the increases in capacity and real density will enable us over the next couple of years to develop a new, smaller form factor. We'll have very high performance and very high packing density. Advances in silicon technology, along with the data rate coming off the disk drive, means we're ripe for a new interface-how we connect drives into the systems. We're very excited about serial interface. This started with the fiber channel interface in server, where we have very strong products. We're very, very excited about the evolution of Serial ATA-that's going to happen across the board in desktops as well as in servers. It's going to merge those fundamental, underlying interfaces across the segments. As a result, integrators will be able to package things in a very cost-effective way to get performance.

Q. Finally, John, Can you tell us what your favorite hobby is?
A. Helping my 10-year-old son and his friends build and program Lego robots. He's in a competition that's sort of nationwide. His team, that my wife and I coach, did pretty well.

Thanks for your time.

Q & A

Government Solutions: Q&A with GTSI's Senior Vice President of Sales, Terri Allen

As most of us know, GTSI is an information technology solution leader focused exclusively on Federal, State, and Local government customers. For nearly two decades, GTSI has served those customers by teaming with global IT leaders like HP, Panasonic, Microsoft, Sun Microsystems, Cisco, and EMC. The Technology Teams include technical experts who support a wide range of integrated IT solutions in such areas as high performance computing, advanced networking, mobile and wireless, web portals, high availability storage and information assurance. GTSI continues to broaden its leadership in electronic commerce and procurement through its government focused website located at GTSI.com. Recently, we cornered their fast moving VP of Sales and got a quick update.

Q. Terri, How would you characterize the current spending environment in the government market for IT products?
A. Due to the Continuing Resolution, spending has been greatly curtailed in several agencies as compared to prior years. We understand that due to the war effort, funds are being diverted to support the needs of the potential war.

Q. Where is GTSI seeing strength? What's on your key contacts' wish list?
A. Clearly, our government customers ask us to support them in their efforts to help with enterprise architecture and to support enterprise-wide solutions. This is a very strong request of industry by Steve Cooper and the new department of Homeland Security. In addition, wireless communication as well as server consolidation continues to be major technology related needs. GTSI is well positioned and has great experience in supporting the needs of our government customers as it relates to wireless solutions and server consolidation efforts from beginning to end.

Q. Are there any new initiatives that GTSI implemented as an integrator to take advantage of the opportunity?
A. We understand the need to support our ultimate customer through and with Systems Integrators. As such, we have a team of sales and technical professionals who are solely devoted to supporting the current and emerging program needs of the systems integrator community. Additionally, we have eleven Technology Teams comprised of technical subject matter experts who are skilled at understanding our customer's unique requirements and responding with customized solutions to include services, hardware and software. Our Technology Teams have expertise in areas such as Enterprise Software, Network and Communications, Enterprise Storage, Mobile and Wireless, High Performance Computing, Emerging Technologies, Information Security, and Enterprise Consulting. Additionally, GTSI has financial services solutions that allow our customers to acquire the technologies that they need on leases that support the needs of our government customers.

Q. Finally, Terri, What are some examples of positive vendor relationships you have - and what makes them special?
A. We have relationships with over 1,300 partners in the technology arena. At GTSI, we have had long -standing relationships with organizations such as HP, Microsoft, SUN, IBM, Panasonic, Cisco, and others. This really embodies the true concept of partnership. GTSI has invested in the relationship with our partners by holding a vast number of technical certifications in each of our key partners' technologies. WE invest in our partners with ongoing training and development of our people and of course the GTSI Technology Teams which are unique in our space.

Thanks and Good Selling!

Q & A

Q&A with ATI's Senior Business Development Manager, Toshi Okumura

Q. How's 2003 starting off for ATI?
A. 2003 has been very exciting so far. ATI has had many successes including winning many awards for our product in stand alone reviews and in system reviews with our System Integrator Partners. We are also rapidly gaining market share in the very important System Integrator/System Builder segment we will continue to gain share in 2003. We have the industry leading product line-up today and we have many exciting news coming from ATI very shortly. We expect to keep the performance crown and will maintain top to bottom product leadership. Please stay tuned.

Q. How is the overall graphics market doing?
A. There has been very exciting advancements in the last couple of months starting with the release of DirectX 9 and the new benchmark from Futuremark, 3Dmark2003. We anticipate many applications to be released that will take advantage of DirectX 9 and equivalent OpenGL features in the very near future. The migration from fix function to programmable Vertex and Pixel Shaders have enabled this rapid deployment of new features in applications that will take advantage of the new graphics hardware. It is a very exciting time for the graphics market.

Q. What are your key initiatives this year?
A. Key initiative for ATI in 2003 is to maintain the performance and technology leadership throughout the product line-up. The Enthusiasts are turning to ATI for their gaming card of choice and we will leverage this to mainstream and value mainstream market. ATI has the world leading product line-up today and our goal is to maintain our leadership role. As I said earlier, we have many new and exciting announcements coming soon. Please stay tuned. ATI will also launch a new and improved System Integrator Partner Program (SIPP). This program is a way for ATI to help our System Integrator/System Builder Partners to increase their marketing funds and exposure with ATI. This program is tailored to suite the SI/SB community and it will help our partners to increase and enhance their marketing activities. ATI would like to drive our relationship with the community to the next level

Q. How can the channel leverage this opportunity and its relationship with ATI?
A. The System Integrator/System Builder customers can leverage this opportunity by signing up for ATI's System Integrator Partner Program (SIPP). Our SIPP members will receive access to the secure site containing information on the program, marketing materials and other beneficial information regarding ATI. They will also receive the monthly e-Newsletter from ATI. This is a way in which we can develop and increase our relationship with our partners and keep them abreast of what is going on from ATI and it's Graphics board partners. By becoming an SIPP member you will also receive a quarterly System Integrator Reference Guide. This is a book that is full of useful information about ATI, it's products, technology and Add-in-Board partners. If you don't have one, please drop by our booth to pick on up. Last but not least, by becoming a SIPP member, you can accrue marketing funds on each and every ATI RADEON based graphics solution you purchase from one of the approved partners (Approved partners are listed on the SIPP member site). This includes any Notebook purchased from an approved ODM. For more information on the SIPP and its benefits, please drop by our booth at the solution pavilion .

Thanks for these insights and good luck!

How to Leverage SMB IT Channel Preferences

Mika Yamamoto Krammer

Abstract: Vendors seeking a share of the small and midsize business market must recognize clients' channel preferences and understand which products are best suited for distribution within each channel.

Recommendations

• Develop a product- and service-specific channel strategy. The most popular channel overall might not be the right channel for your given offering.
• Seek partnerships within the SMB's trusted advisor network to enable "warm leads" and avoid ineffective cold calling.
• Set expectations with investors and executives that gains in the SMB market will only be realized after time and effort is invested in developing relationships with key technology purchase influencers within targeted SMB enterprises and market segments.
  

Introduction
It is critical for IT product and services providers to establish a foothold among small and midsize businesses (SMBs) in executing an indirect channel program that will result in successfully selling into this SMB market. To the chagrin of many IT vendors, this is no easy task. It requires investment in research, money and time to find the necessary and appropriate channel partners, not to mention the time and resources required to develop relationships and launch comprehensive channel programs with these partner companies. Vendors with suboptimal offerings provided through a well-executed channel strategy are more likely to be successful among SMBs than vendors that offer fabulous products or services through inappropriate or ineffective channels. Some might argue that the most notable example of this was the proliferation of Windows through the original equipment manufacturer (OEM) channel vs. other OS alternatives.

Business Trend
The absence of the next big thing, the economic slowdown and the saturation of the large enterprise market present IT product and services vendors with a quandary in terms of how to achieve revenue growth (or even maintain current revenue run rates). Enter the SMB market. As the fastest-growing market from an IT spending perspective during this economic downturn, small SMB are the belle of the IT sales and marketing ball, these days. In the services industry, revenue from SMBs was more significant than that generated from large enterprises. Every major vendor is vying for a piece of the action. Many are coming to the realization that success in this market segment for many IT products is driven by channels more than by differences in features and functions. IT vendors are realizing that SMBs have established relationships with and buying preferences for established IT solution providers, such as VARs, SIs and so on, that are the traditional channels for IT vendors into this coveted market space.

Gartner Dataquest Perspective
No single channel can be all things to all IT product and services vendors. Though several options exist, they fall under the direct model (direct sales force, manufacturer-owned retail store or online from manufacturer's Web site) or the indirect model (VARs, systems integrators, retail or other IT vendors). Some vendors chose one or the other, while others chose a combination. Networking equipment vendors, for example, chose to sell their products through the indirect model, while business application vendors often sell both through direct and indirect channels.

SMBs purchase their technology through two main channels - directly from the vendor and from VARs. Though the relative importance varies between businesses with 100 to 499 employees vs. 500 to 999 employees. VARs are one of several indirect channels a vendor may choose (dealers such as CDW, systems integrators [SIs] and retail are others examples of the indirect business model). A recent survey of midsize businesses supports this statement (see Figure 1). The importance of the VAR and online channels are on the rise. For example, because of the high cost of direct, in-person selling and the demand for integrated solutions