The Good News First

Pricing pressure, consolidation, a sluggish European economy and rising fuel costs are among the issues facing the channel in 2006, but the overall outlook is positive, according to several executives.

“Feedback from customers is generally optimistic. There&'s a lot of new products, new solutions in the marketplace, and customers are performing well,” said Steve Raymund, chairman and CEO of Clearwater, Fla.-based Tech Data, after the company&'s third-quarter earnings call last week. “From a macroeconomic standpoint, any risks are probably found outside the IT industry: areas like interest rates, terrorism, fuel prices, currency woes that could rumble through the broader economy and affect demand for IT products.”

Several executives cite research firm IDC&'s forecast that IT spending growth in the United States will increase 4.9 percent next year, up from its estimate of 4.4 percent for 2005, in saying things are just fine.

“We&'re a number of years out now from Y2K, and there is great growth in desktop units. With [Microsoft&'s Windows] Vista out later in [2006], that will help continue this a little bit. Once a new OS is out, it will require different desktops, notebooks, etc.,” said John Edwardson, CEO of CDW, Vernon Hills, Ill., at the Raymond James and Associates IT Supply Chain Conference in New York earlier this month.

But Edwardson said fears about rising costs in other parts of the economy could affect IT spending next year.

“There&'s a utility company on the East Coast telling customers to expect a 50 percent or 60 percent increase in their heating bill. In addition to higher gas prices [than a year ago], it leads to a slowdown in consumer spending in general, which ultimately affects us,” Edwardson said.

Meanwhile, pricing pressure has stabilized, but not lessened, said Greg Spierkel, CEO of Ingram Micro, Santa Ana, Calif. One factor that may be causing more aggressive pricing is smaller companies looking to grow revenue in order to be a more attractive acquisition target, Spierkel said.

“They&'ll get the top line up but they won&'t make investments in the company. That works for a year and then they start creaking at the seams. That&'s a balance we need to watch,” he said.

Several solution providers agreed with the distribution executives&' overall outlook and said the momentum they are seeing this year should continue into 2006.

Sam Haffar, president and co-CEO of Computex, Houston, said he is seeing as much as a 25 percent increase in sales this year as a result of Computex&'s strength in server consolidation, clustering and e-mail archiving. Haffar said he has converted four Dell accounts to Hewlett-Packard over the past six months, including a $1 million customer.

Jason Goelde, a partner at MBM Computer System Solutions, a Troy, Mich., solution provider, said he expects sales to be up about 10 percent this year. “We are more focused on service, and it is helping us move more product,” he said.

Goelde also sees more customers moving away from Dell. “Companies are realizing that it is not about buying a product,” he said. “It&'s about having a partner.”

Many channel executives at the Raymond James conference were reluctant to attribute a positive outlook to Dell&'s recent financial missteps, but they said the channel will continue to be a more popular and efficient model next year.

“We believe that a transformation is in order. This is not a case of ‘let&'s keep doing what we&'re doing.&' Let&'s keep working harder,” said Rich Fennessy, CEO of Insight Enterprises, Phoenix. “We&'re moving from being the best source for computer products and services for businesses to become the trusted adviser to our clients.”

JENNIFER LAWINSKI contributed to this story.