VARs Brace For Enterprise Network Spending Lull

Economic uncertainty and fluctuating markets could diminish enterprise network spending, with Cisco Systems taking a hit in the enterprise market, a recent study has revealed. But VARs are bracing themselves to be ahead of whatever may come and are looking at other markets to sustain them if the enterprise well dries up.

Jerry McIntosh, national director for Cisco business practices at ePlus, a Herndon, Va.-based solution provider and Cisco partner, said he has yet to see any immediate impact to ePlus' Cisco business in the enterprise, but said uncertainty has him looking at other options in the event a recession hits.

"I wouldn't say that we've seen a slowdown yet," he said. "But we anticipate that things could slow down in the enterprise space."

According to McIntosh, an economic downturn should have little impact on enterprise projects ePlus currently has on the books, and CIOs have assured him that they are committed to complete projects that have been approved and budgeted. However, McIntosh said that while projects will move forward, the pace of those projects could slow down. For example, he said, a $10 million project that was to be spread out over four quarters could now be stretched to take place over five or six.

In anticipation of a lull in enterprise sales, McIntosh said ePlus is taking several measures, some he said he isn't at liberty to publicly divulge.

"We're doing a few things," he said. "There will be an intensified focus and investment in the commercial sector."

By commercial sector, McIntosh said he means accounts that have between $100 million and $500 million in revenue and about 1,500 employees. McIntosh said ePlus isn't waiting for the other shoe to drop before turning up the heat in segments other than the enterprise.

"We're not waiting to see it happen before we make that shift," he said. "We see it coming and we're positioned to change our go-to-market strategy accordingly. It's almost an equal split between enterprise and commercial, so we've got a pretty healthy head start if one tails off a little."

ePlus isn't alone.

A recent CIO survey released Wednesday by Goldman Sachs Group indicates that enterprise network spending is on a decline. The survey, which asked 100 Fortune 1000 CIOs about their 12-month outlook for network-related spending found that 62 percent of CIOs are calling for continued growth in network spending, a six percent drop compared to the previous year's survey. Additionally, 10 percent of survey respondents said they expect to decrease their networking equipment spending over the next year, while 23 percent of respondents said their network spending will plateau.

When asked specifically about their spending with San Jose, Calif.-based Cisco, 34 percent of CIOs called for growth, which Goldman Sachs said is "still far below healthy mid-50s to mid-60s range" that respondents reported in past surveys.

Despite the immediate dip, the survey indicated that trends will remain in Cisco's favor, mostly due to current and future network demands and the need to support more advanced applications.

"We reiterate our view that Cisco is well-positioned to benefit from the network infrastructure upgrade cycle, advanced enterprise technologies as well as bandwidth growth," according to the study.

That, coupled with a potential upturn in the SMB space and other areas ripe for growth, Cisco should remain strong.

"It is important to remember that large US enterprises represent about 13 percent of Cisco's revenue, and are not the engine for growth anymore," the survey indicates. "Growth in SMB, emerging markets, carriers, and the public sector will likely prove more robust than large-enterprise over the next 12 months, and should benefit Cisco as it has significant exposure in these areas."

NEXT: Spending Gets Conservative