Down But Not Out

This isn't a place for the faint of heart. It's for pluggers who slogged through 2005 knee-deep in rising costs, dwindling margins, troublesome contracts and a share of bum luck. Putting the VARBusiness 500 together always tells two different stories. Some go up; some go down.

Welcome to the downside.

The 10 VARBusiness 500 companies toughing out the biggest declines run the gamut from an IT and BPO services firm in Pittsburgh that's refocusing its efforts and a former high-flyer in disaster recovery to a 20-year-old telecom-systems integrator. What most share, in addition to a rising tide of red ink, is a spirit of perseverance in the face of adversity.

"What do you do? You keep pushing forward," says Dan Love, vice president of business development at Siwel Consulting (No. 373), one of the VARBusiness 500's underperformers this year. "Time will show that we're stronger and more profitable for the experience."

Siwel has time to make up ground. But some companies don't. Once, it looked as if geopolitical turmoil would smile on Comdisco (No. 395), which filed for bankruptcy just two months before 9/11. After the attacks, Comdisco and two other significant disaster-recovery and business-continuity companies benefited from the wave of interest in data-backup services. But within a few months, it became clear that Comdisco wouldn't be able to withstand the takeovers of its bigger rivals. Sungard acquired the meat of the company in 2002, with its remains picked over by the likes of Hewlett-Packard and GE.

Today, the Comdisco that appears on our list is a shell of its former self. "The purpose of [the] reorganized Comdisco is to sell, collect or otherwise reduce to money in an orderly manner the remaining assets of the corporation," the company said in a statement. "Within the next few years, it is anticipated that Comdisco will have reduced all of its assets to cash and made distributions of all available cash to holders of its common stock...At that point, [it] will cease operations."

But for a company that's in the business of going out of business, Comdisco is doing well, dropping nearly 66 percent in revenue from $108 million to just $37 million.

There's something encouraging about the largest decliner on the VARBusiness 500 being a loser by design. The remaining companies on the downward slope, however, don't have such obvious explanations for what's happening to them. For some, it's a matter of market place, not market space.

The folks at Pittsburgh-based UBICS (No. 474) might want to dip into the product line of their parent affiliate, United Breweries Group. The Bangalore, India-based conglomerate, best known for its whiskey line, announced last year that it wanted UBICS to be focused on Central Asia, not Western Pennsylvania. That's more bad news for UBICS' domestic work force, which was already cut from 250 employees in 2003 to just 50 last year. And if there's promise in the offshore market, it has yet to show up on the UBICS ledger in India.

Despite UBICS' precipitous 52-percent drop from $53 million to $25 million in annual revenue, "our decision to start the India operations and make it a strategic hub to UBICS' global business plan has been greatly vindicated in our last year's performance," said Vijay Mallya, chairman and CEO of UBICS and chairman of the UB Group, in a statement. "Not only has the India Development Center been complementary to our international efforts, but UBICS has also made certain key inroads in the Indian market with its internationally acclaimed products and services...I see UBICS clearly emerging as a leader in the Indian IT industry and a jewel in the crown of the UB group."

NEXT: Sucking it up when it's not your fault.

The list of VARBusiness 500 decliners is full of service providers pummeled by decisions outside of their control. For UBICS, it was a parent. For others on the list, the blow came from a partner.

"We got caught in the wash," Siwel's Love says. "We had a big drop because IBM changed the rules. We just have to move on."

The "big drop" of 48 percent for Siwel, from $80 million to $41 million in revenue, stemmed from IBM's decision last year to discontinue the VAR's Licensed Service Provider program. Siwel was one of a few LSPs that was being paid to manage software licenses for major IBM accounts. "IBM decided to kill the program and make it a direct play," Love says, adding that, of the small number of LSP players, Siwel was the smallest, making the hit doubly hard on the New York-based company.

"It hurt. Certainly 2005 was not a banner year," Love says. "But the economy is improving. We're getting more into services, and we've always been lean and mean, so our profitability remains strong. We'll do things to augment the business we've lost. You have to. In my experience, when one side gets hurt, another side shores it up."

Recurring themes on the downside of the VARBusiness 500 are the difficult and expensive chores of retooling businesses and shedding poorly performing units.

In business since 1987, TeleCommunication Systems (No. 223) has seen its share of ups and downs, but few years have been as difficult for the company as 2005, when revenue slipped 28 percent from $143 million to $102 million.

While the company reported decent gains in carrier and government sales, the bulk of its losses were in the enterprise division, which largely included customers it acquired with Aether's EMS division in December 2004. TeleCommunication Systems is now looking to sell off its enterprise division and refocus on its commercial-carrier and government clients, according to company executives in Annapolis, Md.

Also struggling is Intelligent Decisions (No. 236) of Ashburn, Va., which saw revenue slip 27 percent from $130 million to $94 million and its position on the VARBusiness 500 drop from 186 to 236. According to Terri Pond, director of marketing, the numbers belie a change in "quality of revenue" as the company shifts the bulk of its sales from hardware to professional services.

"It's difficult to make the transition," Pond says, "but we believe we have the right formula."