CRN Monthly Technology Spending Outlook, August 2004

1. Near-Term Sales Outlook
(based on a survey of 152 VARs in July 2004)

Solution providers' near-term sales expectations in the small- and midsize-business market fell in July compared with June, continuing a decline from record-high levels in May. Yet overall channel sales expectations remain strong by historical standards, especially in the notebook category. The overall spending expectations index dipped to 92 in July, below June's mark of 106 as well as the May 2000 baseline index of 100. By comparison, the index stood at 63 in July 2003.

Within the SMB category, VARs exhibited different sales outlooks. CRN research found that solution provider sales expectations in the midsize-company segment rose in July, whereas expectations for the small-business segment slipped. Future data will reveal whether this marks a one-month data blip or the beginning of a shift in solution provider sales sentiment.

In the enterprise market, the channel's sales forecast continued to warm in July, reflecting other CRN research showing that technology is rising as a spending priority at large companies. Solution provider sales expectations for the government market also improved last month, a trend supported by Input, a government market research firm. The federal government awarded $23 billion in IT-related contracts during the second quarter, a 50 percent year-over-year gain, according to Input.

On the technology front, five of the seven hardware and software categories CRN tracks showed declined VAR sales expectations in July compared with June. The decreases were particularly sharp in desktops, notebooks and Unix/RISC servers. However, networking--a notable area of weakness in recent months--showed some strength in July. Sales expectations for networking software jumped, while networking hardware saw only a tiny decline.

Spending Expectations Index CHART

Sales Expectations By Market Segment CHART

2. Hot-Growth Tech Categories
(based on a survey of 152 VARs in July 2004)

Newer technologies represent most of the top 10 categories where solution providers have their highest near-term sales expectations. What's more, four of those areas--convergence/CTI, data warehousing, digital home convergence and imaging/image management--have shown steady growth in VAR sales expectations over the past six months. So one could characterize those segments as the new technologies that solution providers think hold the best promise for longer-term, sustained sales growth. Those four categories also are among the technologies showing the fastest increase in the percentage of solution providers planning to sell, resell, specify or recommend them to their business clients.

Top 10 Categories With Highest VAR Sales Expectations CHART

Outlook Getting Rosier CHART

3. Small-Business IT Spending
(based on a survey of 200 small-business IT executives in July 2004)

Half of the small businesses polled in the July CRN Business Spending Survey expect to hike their IT budgets over the next year, the same percentage as in April, the last time small companies (fewer than 100 employees) were studied. Though VARs surveyed by CRN don't have high hopes for this segment in the near term, just 14 percent of small businesses said they expect their tech budgets to decline, with the rest forecasting no change in spending.

Spending gains stand to be larger than spending declines, which should keep overall small-business spending on the rise, CRN research found. For example, nearly three out of four small businesses expecting to boost IT spending project an increase of at least 10 percent over the next year. In contrast, 58 percent of companies expecting tech spending declines foresee a drop of more than 10 percent.

In another good sign for the channel, small businesses angling to raise IT spending are more committed to doing so than companies expecting to trim spending. Sixty-five percent of businesses that plan to hike spending are "extremely" or "strongly" committed to making those increases, whereas 44 percent of companies expecting to reduce spending are "extremely" or "strongly" committed to doing so. Consequently, solution providers have ample opportunity to sway small-business customers mulling IT spending decreases to rethink their plans.

Tech categories where small companies exhibited an increased spending priority in the July survey included wireless, supply chain management, CRM, desktops, peripherals and storage.

Small-Business IT Budget Forecast, Next 12 Months CHART

4. Best-Selling Hardware Brands
(based on a survey of 152 VARs in July 2004)

Data for best-selling brands in July was unusually volatile for all three major hardware categories, especially notebooks. Because of such significant changes since June--for both branded vendors and white-box builders--these results should be interpreted with caution. Survey data for August will help show if these are one-month data blips or the start of new trends.

Hewlett-Packard turned in a decidedly negative performance in July, with hefty declines in the percentage of solution providers citing its desktops, notebooks and PC servers as their best-sellers. Although HP eked out a small gain in Unix/RISC server category, its percentages are well below year-ago levels.

On the other hand, Dell turned in a strong performance last month with a solid gain in the percentage of VARs naming its desktops, PC servers and notebooks as their top-selling units. Dell's July figure for notebooks was the highest in the nine years that CRN has been tracking best-selling brand data.

Dell's notebook gains came not only at the expense of HP, but also IBM. For the first time ever, the percentage of solution providers citing IBM notebooks as their best-selling was zero in July, down from 10 percent in June. At the same time, the percentage of VARs naming Acer as their top-selling laptop reached an all-time high of 7 percent in July. Nevertheless, IBM performed solidly in the desktop, PC server and Unix/RISC server segments, where it posted strong gains in its best-selling percentages.

The white-box category strengthened its already dominant presence in the SMB market for PC hardware. In July, 16 percent of solution providers cited custom systems as their top-selling notebook--the highest figure that CRN has recorded for white-box laptops. The custom-system segment also saw gains for Unix/RISC servers.

Percentage Of VARs Citing Each As Their Top-Selling Computer CHART

5. Component Availability
(based on a survey of 152 VARs in July 2004)

Overall, availability in the five major component categories decreased in July compared with June. For example, the percentage of white-box builders citing severe shortages in motherboards and memory increased sharply.

Shortages remain highest in the LCD category. However, the shortfalls eased a bit last month, and two-thirds of system builders indicated no supply problems in this segment. Microprocessors, too, saw slightly improved availability in July vs. June. Moreover, shortages in microprocessors decreased year over year, as was also the case for hard drives.

Percentage Of White-Box VARs Citing Each Level Of Availability CHART