CRN Monthly Technology Spending Outlook, September 2004

1. Near-Term Sales Outlook
(Based on a survey of 217 VARs in August 2004)

For the third straight month, solution providers' near-term sales expectations fell in the wake of a record high in May. The overall spending expectations index dipped to 86 in August, compared with 92 in July, 106 in June, 111 in May and the benchmark of 100 in May 2000 .

The August index figure, however, is only slightly below its 12-month moving average. So the three-month decline in the index likely doesn't auger a significant or a prolonged sales slowdown. CRN believes the falloff reflects sales expectations settling down to more "normal" levels following an excessive burst of sales optimism earlier in the year.

Five of the seven individual hardware and software categories showed lower VAR sales expectations in August, particularly in networking software and PC servers. Desktops and Unix/RISC servers, on the other hand, drew increased sales expectations.

On the customer side, solution provider sales expectations dropped for the enterprise market and midsize businesses, notably the latter. In August, 55 percent of VARs polled by CRN said they expect midmarket sales gains of at least 6 percent over the next three months, down from 66 percent in July. Solution providers, too, are less sanguine about sales to the government market.

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Yet VARs were more upbeat about potential sales to small businesses. In the August survey, 64 percent said they expect near-term sales gains of at least 6 percent, up from 60 percent in July. More important, channel sales expectations remain above year-earlier levels in all three company segments.

Spending Expectations Index CHART

Sales Expectations By Market Segment CHART

2. Hot-Growth Tech Categories
(Based on a CRN survey of 217 VARs in August 2004)

Security continues to dominate the list of technology categories with the highest near-term sales expectations, but several new segments made it into the top 10 in August. Antivirus took over the No. 1 spot, Linux climbed into the top five, and IP telephony cracked the top 10. Mainline categories such as networking hardware and WLANs also remained in the top 10 from July to August.

Not surprisingly, four of the top six categories that solution providers plan to sell, resell, specify or recommend are also on the list of categories where solution providers expect the fastest sales growth. Profitability, after all, is still the main driving force for any business.

Top 10 Categories With Highest VAR Sales Expectations CHART

3. Midsize-Business IT Spending
(Based on a CRN survey of 200 midsize-company IT executives in August 2004)

Nearly 60 percent of midsize companies (100 to 999 employees) polled in August said they expect to hike their IT budgets over the next year, up 2 percentage points from May, the last time this market segment was examined. Although solution providers anticipate slower midmarket spending in the near term, just 10 percent of midsize firms expect their IT budgets to decline, and the rest don't expect any spending changes.

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What's more, spending increases are likely to be larger than spending cutbacks declines, which should keep overall midsize-company spending on an upward track during the next year, CRN research found. Four out of five companies that expect to boost IT spending project an increase of at least 10 percent, while only 58 percent of companies that expect a spending decrease anticipate a drop of more than 10 percent.

Another good sign for the channel is that midsize companies expecting spending hikes are more committed to implementing them than the companies expecting spending decreases. Eighty percent of companies planning to raise spending are "extremely" or "strongly" committed to doing so, compared with 62 percent for businesses planning to cut spending. That should give solution providers ample room to influence midmarket customers' decision-making when it comes to reducing spending levels.

Midsize-Business IT Budget Forecast, Next 12 Months CHART

4. Best-Selling Hardware Brands
(Based on a CRN survey of 217 VARs in August 2004)

Hewlett-Packard turned in a robust performance in August, reversing its July showing. CRN uncovered substantial increases in the percentage of solution providers citing HP's desktops, notebooks, PC servers and Unix/RISC servers as their best-selling units. Still, save for Unix/RISC servers, those percentages remain below year-earlier levels.

On the flip side, Dell reversed a strong July performance with a weak showing in August, when the percentage of VARs citing the vendor's desktops, notebooks and PC servers as their top-sellers declined. In fact, a comparison of the June, July and August data strongly suggests that the sharp gain in Dell's notebook percentage for July was just a one-month blip, since that percentage sank in August.

IBM saw a jump in the percentage of solution providers citing its notebooks as their best-selling units in August, but the percentages for desktops, PC servers and Unix/RISC servers declined. As with Dell, IBM's July figure of zero percent in the notebook segment appears to be a one-month quirk when one compares the June, July and August data. Sun Microsystems had no change in its VAR best-seller percentage in Unix/RISC servers for August, though that figure is less than half of what it was a year ago.

White boxes showed strength in the desktop and Unix/RISC server categories but posted slight declines in notebooks and PC servers. Nevertheless, it's clear that custom notebooks are gaining traction. In August, 14 percent of VARs said whitebooks were their top-selling laptops, nearly triple the year-earlier levels. Custom notebooks also are among the top 10 products and technologies that solution providers plan to recommend to their business clients in the near term, according to CRN research. Look for white books to put extra pressure on branded vendors in coming months.

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

5. Component Availability
(Based on a CRN survey of 217 VARs in August 2004)

Component availability improved significantly from July to August, as shortages eased in six of the seven component categories CRN tracks, led by motherboards, memory and video cards. That reversed an increase in shortages seen in July.

The LCD segment continues to experience the biggest shortages, with one-third of white-box builders reporting moderate to severe shortages. However, that figure is unchanged from July and June, indicating that the supply situation is stabilizing. Prices for LCD panels also are forecast to decline, another good sign on the supply front. That bodes well for custom-notebook builders and could fuel market-share gains by whitebooks down the road.

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