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NPD Group: Hardware Is Still King In The Channel

While software is seeing the fastest growth, hardware continues to generate the bulk of the sales for solution providers, the research firm said during XChange 2018.

While software is seeing the fastest growth in the B2B channel, hardware continues to dominate the picture when it comes to overall channel sales, executives from research firm The NPD Group said Tuesday during XChange 2018.

The presentation from Michael Diamond, the firm’s director of industry analysis for B2B technology, and Jana Munford, executive director for B2B technology at The NPD Group, offered something of a reality check for solution providers about the state of different market segments within technology.

[Related: The 5 Best-Selling Mobile Workstation Brands Of Q1 2018]

The NPD Group, which tracks sales from major North American IT distributors and resellers, found that the U.S. B2B market grew to $80 billion during the 12 months that ended in June, up from $73 billion the year before.

Software grew by 9 percent, compared with 4 percent for hardware, The NPD Group reported.

However, hardware still made up about three-quarters of the sales overall, with software accounting for the rest of the market.

"The story here is really that hardware is the bulk of the market," Diamond said during a session at XChange 2018, which is being held this week in San Antonio and is hosted by CRN parent The Channel Company.

"Software is the growth story right now. But don't forget, in that software number, some of that is licensing for the appliances," Diamond said. "So it's not just all cloud. Cloud is growing very quickly, but there is also licensing involved when you sell a switch or a router."

As for the individual segments within the B2B market, PCs ranked as the second-fastest-growing segment during the second quarter of the year, The NPD Group found. "We're seeing a reboot of the PC market," Diamond said.

He noted that, "counter to what people think,” even the desktop market is growing -- thanks in part to increased demand for desktop workstations. Outside B2B, gaming hardware, including gaming notebooks and peripherals such as keyboards, are also surging, Munford said.

The software segment grew the fastest during the second quarter. And within software, cybersecurity saw the strongest growth, Diamond said. Networking ranked at No. 3 for fastest growth during the second quarter among individual segments.

On the whole, "you hear all this rhetoric about how the B2B channel is going down, and cloud is going to kill everybody," Diamond said. "Is it? No, it's not. [B2B is] doubling GDP growth. Year to date, from January to June, the channel grew 9 percent. … That's pretty fantastic."

Michael Lomonaco, director of marketing and communications for Grand Rapids, Mich.-based solution provider OST, said the presentation shows that even with the massive opportunity in areas such as the cloud and Internet of Things, "on-prem infrastructure is not dead."

"Storage is growing, according to their data. Servers are growing. Networking is growing. So there's still significant opportunity there," Lomonaco said.

As a solution provider, you “hear a lot about IoT and cloud. And we absolutely want to be having those conversations. But not at the expense of what might be your core business,” he said.

The right approach is to "continue to evolve your offerings, continue to evolve your business. But do it in light of what your customer's needs are," Lomonaco said. "Because going too fast, too much into one space, could really damage whatever your core business might be. Customer-led is always a good strategy."

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