Some of the industry's biggest solution providers said 2014 was a good year, but they expect 2015 will be even better for their companies and the channel.
The top solution provider executives from CDW, Insight and PC Connection took the stage in front of investors at the recent Raymond James Systems, Semiconductors, Software and Supply Chain Conference in New York to share their company and market visions.
The solution providers all said that they expect to exceed market growth, to varying degrees. However, while all the executives from the top SP500 companies were optimistic for a good new year, there was not much consensus on from where that growth would be coming.
"It's been a fantastic year for us," PC Connection Senior Vice President and Chief Financial Officer Joe Driscoll said, highlighting 11 percent revenue growth for the first nine months of the year. For 2015, Driscoll said that he anticipates PC Connection will see "low- to mid-single-digit growth," exceeding the market average growth predicted by IDC at 2.7 percent.
CDW Senior Vice President and Chief Financial Officer Ann Ziegler said the solution provider would comment on its upcoming fourth-quarter earnings call about its official outlook, but said the company expected to exceed market growth by 2 to 3 basis points.
Insight CEO Ken Lamneck said that he agrees with overall IT market estimates of 4 percent to 5 percent growth, although he didn't say whether Insight will exceed that growth number or not. Lamneck did say that he expects the company to be on track for its growth to continue after strong third-quarter results and still be able to achieve its 3.5 percent gross margin goal at some point down the road, despite setbacks caused by Microsoft's partner program changes earlier this year.
The solution providers shared some common visions on where market opportunities lie in 2015, such as education and the end of support for Server 2003.
In particular, CDW's Ziegler said she sees a lot of opportunity in the education market due to Common Core requirements. She said CDW has already seen "great performance" in the education market so far, and expects that to continue as market estimates put only 50 percent of schools in compliance with Common Core technology standards. On top of that, Ziegler said there is a significant opportunity to update infrastructure solutions for K-12 clients.
PC Connection's Driscoll said he saw a "surge" in Chromebook sales to education clients due to new Common Core requirements for schools. However, he said PC Connection doesn't expect those sales boosts to continue into 2015.
Driscoll highlighted tailwinds from the end of support for XP as a major boost for the Merrimack, N.H.-based company, saying the resulting refresh added around $40 million to top-line growth. However, he said those trends are not expected to continue into 2015. Ziegler said that while CDW saw more transactional business than services business in 2014 due to the XP end-of-support refresh cycle, she expects the usual 50-50 mix to return next year, especially with the end of support for Server 2003 in July.
Lamneck said that Insight sees the end of support for Server 2003 in July as having the potential to be even greater than the end of support for XP. The opportunity has the potential to boost infrastructure upgrades, cloud and Insight's growing services business, he said.
"It’s a pretty substantial opportunity for us," Lamneck said, citing market estimates of 24 million servers that will need updating. "This is a big deal. This is much bigger than XP was because a lot of legacy applications that have to be remediated in some fashion."
Driscoll also highlighted the company's move to selling more advanced solutions, such as storage, networking and services. That has helped raise the gross margin percentages from 11.6 percent in 2010 to 13.2 percent in 2013, which is a move "in the right direction," Driscoll said.
The solution provider's goal is to make those advanced solutions, including storage, networking, services, software and servers, about 50 percent of the company's total product mix. Those advanced solutions currently stand at about 40 percent of the company's product mix, he said. However, CEO Tim McGrath said there was a "great sense of optimism around the data center" for 2015, including pent-up demand for projects around networking, storage and servers. That will drive higher margins for the solution provider, he said.
Driscoll outlined a growth strategy for PC Connection that includes a focus on services, adding key sales and technical staff, international markets and preparing for key manufacturing partner relationships. He said he believed organic growth combined with smaller acquisition deals over the years would help PC Connection grab hold of more market share and continue revenue growth.
For Insight, 2015 means a focus on earning client loyalty, driving profitable growth, cloud solutions and striving for operational excellence, Lamneck said.
PUBLISHED DEC. 22, 2014