CRN Monthly Technology Spending Outlook, July 2004

1. Near-Term Sales Outlook
(based on a survey of 271 VARs in June)

Solution providers' near-term sales expectations in the small- and midsize-business market last month backed off slightly from record high levels in May, yet they remain strong by historical standards. The overall spending expectations index dipped to 106 in June from 111 in May, but it still topped the May 2000 baseline index of 100.

Four of the seven individual product categories showed declines in sales expectations in June, including networking hardware, networking software, peripherals and Unix/RISC servers. VARs' sales expectations for networking have been conspicuously weak over the past few months, with the index figures considerably lower than in most other categories.

Desktops, PC servers and notebooks, however, saw increases in sales expectations last month. The notebook segment, in fact, reached its highest level of sales expectations in the four years that CRN has been collecting data, continuing a pattern of strength that began late last year. The desktops category recorded its third straight monthly gain in expectations, as did PC servers.

Given the surge in sales expectations over the past year--and particularly during 2004--it's not surprising to see a decline in June's overall index. Still, the decline was relatively small, and several categories continued to show gains. CRN believes the SMB market, and notably the small-business segment, will continue to see the highest percentage gains in technology spending through the rest of 2004.

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*NOTE: No index figures are available for storage hardware and software, but sales expectations in both segments were lower in June compared with May. In June, 51 percent of VARs polled expected an increase in storage hardware sales of 6 percent or more in the following three months, down from 54 percent in May. For storage software, 43 percent of VARs surveyed in June expected a sales gain of at least 6 percent in the following three months, down from 48 percent in May.

2. Enterprise IT Spending
(based on a survey of 125 large-company IT executives in June)

Despite some recent statements by individual IT vendors that enterprise sales have been disappointing, the outlook for technology spending by large firms--those with at least 1,000 employees--is becoming brighter, according to data from the June CRN Business Spending Survey. What's more, enterprises' the level of spending priority for IT climbed to its highest level since CRN began tracking data two years ago.

Of the 19 hardware, software and Internet-related technology categories CRN tracks regularly, 17 showed a higher level of spending priority in June vs. March, the last time large companies were surveyed. Notebooks and storage were the only exceptions. The priority level for most categories also was much higher when compared with year-earlier levels.

Six of the eight hardware and software categories tracked--desktops, notebooks, networking hardware, networking software, PC servers and Unix servers--reached their highest spending priority level since CRN began collecting data in early 2002. Again, notebooks and storage were the exceptions, but those segments still show strong levels of spending priority.

Security continues to head the enterprise market's list of spending priorities, and that category is growing in importance--a trend that's unlikely to change in the foreseeable future. Other Internet-related categories showing high spending priority levels among large companies include Intranet development, Web services, wireless and e-commerce.

3. Best-Selling Brands
(based on a survey of 271 VARs in June)

Branded hardware vendors turned in a mixed performance in June compared with May, according to CRN's June poll of solution providers.

Hewlett-Packard, for example, saw an uptick in the percentage of VARs citing its PC servers as their best-selling, but it also had slight declines in the desktop, notebook and Unix/RISC server segments. Similarly, an increased percentage of solution providers cited Dell desktops as their top-selling. A decreased percentage named Dell as their best-selling laptops. Dell PC servers saw no change. IBM was hit hard in the desktops and PC server categories, but it saw an equally strong gain in Unix/RISC servers.

>> To purchase all or part of CRN's monthly survey data, contact Monty Cornell, CMP Channel Group Research Director, at (617) 522-0472 or at [email protected].

Posing a challenge to all branded computer vendors in the SMB space is the growing strength of white boxes. The percentage of solution providers citing white boxes as their top-selling systems rose in the desktop, PC server and Unix/RISC server categories, despite increased component shortages. Only the notebook segment saw a decline. Still, the percentages in all four categories are above year-ago levels for custom systems and, in most cases, are much higher.

In the June survey, there was a drastic decline in the percentage of VARs citing Sun Microsystems as their No. 1-selling Unix/RISC server brand. That percentage has dropped by more than half over the past year, with rival vendors such as HP and IBM--along with white-box builders--picking up the slack.

The white-box category experienced declines in the desktop, PC server and Unix/RISC server segments and registered a slight gain in notebooks. Custom-built systems, though, remain a strong offering in the SMB market, where the percentage of solution providers citing these systems as their top-selling is higher than for any single branded vendor in the desktop, PC server and Unix/RISC server areas. CRN believes that trend will continue, as VARs capitalize on the better service and support opportunities and the ease of customization that white boxes offer, as well as the opportunity to avoid onerous requirements that often go with being a branded-vendor partner.


4. Component Availability
(based on a survey of 271 VARs in June)

Availability in the four major component areas that CRN tracks monthly--microprocessors, motherboards, memory and hard drives--improved significantly in June, compared with May.

Yet the LCD category, a new area for which CRN is reporting monthly availability data, remains a bottleneck. One-third of white-box builders report moderate to severe shortages in LCDs, and that figure has changed little over the past two months. Until LCD shortages are resolved, custom-system builder likely will continue playing a much less important role in the notebook space than in the desktop and server markets.