SonicWall Cuts Channel Staff, Hikes Service Contract Prices

Executives at the Sunnyvale, Calif.-based company confirmed that a "small number of employees were affected and let go." Executives maintained that they were unable to disclose exact numbers or names of affected individuals, but said that at least one channel account manager was let go on the East Coast.

Steve Franzese, SonicWall vice president of worldwide marketing, said that the company's decision to cut staff stemmed from the need to keep costs in line with declining projected revenues.

"Really what we're doing is recalibrating," Franzese said. "We're doing everything we possibly can to grow. Sometimes the economy won't cooperate."

SonicWall's Q1 earnings, reported in April, fell short of Wall Street's expectations and the company projected slightly decreased Q2 earnings, anticipating revenues falling somewhere between $46 and $47 million compared to the $48 to $52 million for the second quarter of 2008.

Franzese said that he didn't necessarily see an economic recovery in the near future, but said, "We don't see it getting much worse."

Franzese acknowledged that several partners have expressed concerns regarding declining channel support as a result of the cuts. Going forward, he said that the company would continue to provide "a different kind of support," in light of both the company's and partners' financial limitations brought about by the weak economy. Support will more often be delivered via a partner portal, or with a telephone call, as opposed to live visits, while training will primarily be conducted through Webinars instead of class sessions, Franzese said.

"I know partners are legitimately upset," Franzese said. "Channel partners are saying, 'I have to get by with less support out there from my favorite vendors.' They're all facing that."

Franzese added that the company doesn't anticipate more channel cuts in the near future, but said that they would "continue to keep our costs in line with revenue."

"If we hit our guidance, I think we're good to go," he said.

Additionally, SonicWall raised prices on its one-year Comprehensive Gateway Subscription Service SKU and revamped a promotion that offered free hardware with a three-year subscription service contract. Executives maintained that the one-year SKU price hike, which constituted an increase of about 10 percent, was necessary to drive sales of two- and three-year contracts.

"What we're trying to do is really emphasize subscription services, make the value of the multiyear SKU as powerful as possible," Franzese said. "We've kind of very aggressively priced going in and we wanted to drive more volume to multiyear subscription SKUs."

Despite declining projected earnings and reduced channel staff, partners said that they planned to stay the course with the company.

Todd Barrett, director of sales for Waltham, Mass.-based CPU, said that he didn't anticipate that the cuts would have a significant impact on his company.

"We have a pretty strong team in the Northeast, and we're somewhat of an independent partner," he said. Barrett said that CPU was still coming off a financially turbulent first quarter that ended in March after successfully closing sales in the previous Q4. "I can't imagine too many companies having stellar first quarters," he said, adding that customers were still receptive to replacing existing security infrastructure with SonicWall's products based on cost.

Other partners maintained that they didn't anticipate SonicWall's support levels would drop significantly.

"It's the cost of doing business," said Richard Hyde, sales manager for Whitehall, Pa.-based EZMicro. "Everybody is being hit in some way or another. But our customers love their products, and [the one-year service price increases] are not ridiculous raises."

Hyde said that the cuts would likely manifest in changes to the MDF staffing and procedures, as opposed to support.

Franzese said that while some partners were concerned about what the cuts would mean for the company down the road, members of the SonicWall advisory council had generally been supportive of the company's decisions to reduce costs by cutting head count.

"Beyond that, I haven't had a lot of direct contact this week. So far, I think we're OK," Franzese said. "People are adapting. Some people adapt more slowly and less well."