Hot Technologies

When Dell began to bludgeon the channel and its margins a decade ago with its offer of cut-rate computers sold directly to end users, many resellers all but ceded sales of PCs to Dell and other direct marketers.

The VARs that survived and thrived in the interim reinvented themselves by focusing on more profitable and complex technologies such as storage, security and network integration, as well as the services focused on deploying and managing those systems.

While there's still a huge market for PCs and related support, few VARs would argue they lead with them. Many have spent the past 10 years offering desktops and laptops only reluctantly.

But the tide may be turning.

As 2006 nears its close, Dell is no longer on top of the PC heap. Beset by customer-service lapses and a massive battery recall, Dell lost the No. 1 spot in PC sales to Hewlett-Packard, according to both Gartner and IDC. Dell's growth for the most recent quarter was a paltry 3.6 percent compared with HP's 15.4 percent. While HP doesn't break out direct-vs.-channel PC sales, a growing number of solution providers say they expect to add more PCs to their product mixes in the coming year.

Nearly one-third, or 32.9 percent, of those surveyed for the 2007 VARBusiness State of the Market report see PCs as a key product area. The smaller the VAR, the more likely the provider is to be planning on adding PCs to the mix.

"We've had some customers say they're willing to buy through us as opposed to Dell because the [price] delta is no longer significant," says Jack Safrit, president of Axxys Technologies, a VAR based in the Dallas suburb of Frisco, Texas. But it's not just Dell's missteps that are leading more customers who once bought direct to now turn to their solution providers for PCs. It's because those customers are turning to channel partners for managed services of their entire infrastructures, Safrit says. "Because we have managed- services relationships and we're supporting their environments, they're going to listen to our recommendations more than they did previously," Safrit says.

Overall, PC growth is expected to be marginal, according to market researcher Forrester. "It should be up, but not by a lot," says Forrester analyst Andrew Bartels. If that's the case, why are so many channel partners adding PCs to the mix? Bartels agrees that Dell's slippage is opening an opportunity for the channel.

"You can call it the slowing of Dell," he says, pointing out that there's little if any price differential these days, and customers--notably small and midsize businesses--are willing to pay for the service and support. "It's more a slowing of the direct-sales model," Bartels says.

Mark Simons, vice president and general manager of Toshiba's digital products division, points out that the overall PC market is growing at a rate of 5 percent. "We don't see anything on the horizon that's going to slow that down," Simons says. Toshiba is among several PC vendors that have increased their efforts in the past year to assure partners that customers can't buy its notebooks direct for less than through a channel partner. Simons says that has led more partners of all sizes to step up their efforts to offer PCs.

NEXT: PCs as a convenience, not an opportunity.

Even some enterprise VARs are offering PCs, though not necessarily pushing them. Take Bloomfield Hills, Ill.-based Logicalis, best known for its business of offering networking and enterprise-class server and storage infrastructure from HP and IBM. If customers just want PCs drop-shipped, that's not business Logicalis seeks, says Terry Flood, the company's COO. But if a rollout involves integration with servers--perhaps tying PCs to Microsoft's Active Directory in Windows Server--Flood says his company has become more open to that. "I think all solution providers are looking at that," Flood says. "It's a real opportunity."

Like most solution providers, Flood says his company doesn't look for opportunities to offer PCs but rather offers them as a convenience. He adds that he has no desire to compete with the likes of CDW and PC Connection.

There are always those players, particularly in vertical markets, where offering hardware is a critical part of any solution.

For example, Michael Galvin, managing partner at Integra Network Services, is focused on providing solutions to health-care providers. His particular niche: offering solutions that allow practitioners to access electronic medical records while treating or examining a patient. While he plays up the fact that he offers reliable wireless access-configuration and deployment, as well as support for the application, he also offers tablet PCs. He typically recommends tablets from Fujitsu.

While Galvin says he likes Fujitsu's products and services, he admits he's no big fan of selling hardware. "I'm not enamored with the hardware business; it's more something you have to provide," Galvin says. "As far as desktops go, we'll take the business, but we don't chase it."

One big unknown in the PC segment is the pending arrival of Microsoft Vista. The company has indicated with confidence that Vista--the first major desktop OS release since the September 2001 rollout of Windows XP--will be available in January, although Microsoft's disclaimer adds that the system won't ship until it's ready.

"We believe [the OS] will only continue to grow consumer, SMB and education sales, probably in a more rapid fashion," predicts Toshiba's Simons. Forrester's Bartels, however, has a more moderate view. "Any time a new operating system comes out from Microsoft, it's a catalyst for companies to make new purchases," he says.

On the other hand, he points out that a lot of companies have refreshed their PCs over the past several years and questions whether it will have a meaningful effect. "Vista may not even be enough to pull the PC category by itself," Bartels says.

Integra's Galvin says he's advising his customers to stay away from Vista. "I think the industry knows that the first 12 to 24 months of a new operating system is really a beta," Gavin says.

NEXT: What's hot and what's not.

While PCs may be bucking the trend in the channel, other technologies that for years have had reliable growth, such as storage hardware, security software, wireless networking and VoIP, promise to continue to be top priorities, according to analysts and the VARBusiness State of the Market report. Wireless networking appears to be remarkably strong. The reason is that many SMB customers, and even remote locations of larger enterprises, are forgoing wired connectivity in favor of WLANs.

Because Integra's core client base these days consists of health-care providers, Galvin says he provides clients with whatever solutions they need, though most are based on offering the ability to create electronic medical records, or EMRs. Many health-care providers are turning to VARs for hardware, software and services that allow patient data to be input and accessed electronically at the point of care.

As a result, mobility is a key requirement, and that consequently has led to an uptick in demand for tablet PCs and wireless infrastructure. The value-add Integra offers isn't just throwing in a few wireless access points; rather, it's making sure the solution will be accessible anywhere within a given facility, Galvin says. "It's the whole wireless scheme; it's the survey, the design of it," he says.

Over the past year, Galvin has started offering EMR solutions as managed services, conducting an analysis, recommending the infrastructure and offering it to the customer for a monthly fee, which includes use of the system, support and maintenance. "We, in effect, own the system and manage it remotely," Galvin says.

Demand for wireless infrastructure has surged in the past six months, according to Galvin, Indeed, nearly half, or 45 percent, of solution providers surveyed by VARBusiness expect to add or increase their focus on wireless services. That was the No. 1 technology, the survey found. Putting that in context, though, the No. 2 technology was security software, but only 35 percent said they plan to deploy it. Though not an insignificant number, it's far less than those adding wireless.

However, those numbers are bolstered by small and midsize VARs. For larger, more established VARs, the story is quite different.

Only 35 percent of the large VARs chose wireless software, compared with 43.3 percent for security software.

NEXT: Tiptoeing back into hardware.

Overall, Forrester's most recent CIO survey finds that spending on software will grow about 4 percent, while hardware spending growth will be flat. Still, a growing number of customers are demanding that their solution providers offer hardware, even if their core business is services and software. VARBusiness' recent Market Insight survey of customers, published earlier this year, finds similar trends.

Among those reluctantly getting back into the hardware business is Bill Cunningham, managing partner of SystemSource, a Bloomer, Wis., Microsoft certified business-solutions partner. While he currently offers links to Dell's Web site via the SystemSource site, Cunningham is in talks to offer HP servers.

"It's amazing to me that people prefer to buy hardware locally," Cunningham says, noting he got out of the hardware business four years ago because it wasn't profitable. "We're sort of tiptoeing back into the hardware business. Our clients would really like to buy hardware from us, particularly on the lower end. That's OK with me as long as we can do it at a margin that allows us to carry the paper and that we don't have to maintain too many parts."

On the software side, Forrester's Bartels says the Vista launch notwithstanding, many customers will be preparing for the release of next-generation ERP suites from the likes of SAP and Oracle. Both companies are readying major updates--now presumed for the 2008 time frame--that will be based on a pure service-oriented architecture.

Will that leave customers on the sidelines awaiting those new releases? Bartels doesn't think so. "If you want to migrate to those new releases, you have to be up-to-date and have the latest versions, so we expect to see people updating," he says.

In terms of new application rollouts, those will be more spotty, with demand up for contract and project management and invoice presentment, while procurement will be more flat. "There are definitely pockets of demand, but it will be fairly nichey," Bartels says.

One area in software expected to be reasonably strong is infrastructure management, including virtualization platforms from EMC's VMware and from Microsoft. Also, many are expecting an uptick in sales of Microsoft's new server software, notably SQL Server and SharePoint 2007.

As reported in "Expanding Hooks Into ECM," demand for SharePoint, which adds enterprise content-management capability to Windows-based applications, is exploding.

Microsoft will also gain in some areas new to the company--data protection and security--which could put pressure on solution providers that carry software from the likes of McAfee and Symantec. Of course, security remains a major priority for corporations as well; however, spending growth is forecast to taper off a bit, according to Bartels. "As a focus and priority, it's still strong, but as an investment it may slow down," he says.

NEXT: Networks to grab piece of pie.

Networks To Grab Piece of Pie

If there's one company that's bullish about demand for its technology, it's Cisco. On the surface, that may appear hyperbolic. Networking gear, after all, is as much a commodity as servers these days.

But Cisco is looking to the future, not the past. The company focuses on what it sees as increased demand for Voice over IP, and the overall desire to put more intelligence into the network. Cisco recently told Wall Street that it expects growth for the 2007 fiscal year--which began Oct. 1--will be in the range of 15 to 20 percent. Even better for Cisco and its partners, a survey of 100 top CIOs globally by Goldman Sachs shows that 67 percent of Cisco customers will increase their spending with the vendor over the next 12 months. "That's an all-time survey high," says Keith Goodwin, senior vice president of worldwide channels at Cisco. "That's just a proof point the game is still coming to us."

Among the areas in which Cisco sees growth from a technological perspective is its intent to call the network a platform for unified communications. The company is also betting big on video and not just on the consumer side, with its acquisition of Scientific Atlanta, but in the business segment as well.

Cisco next month will start shipping the first of its TelePrescence Meeting Solution, a high-definition IP-based videoconferencing platform. Intended for conference rooms, pricing will start at $79,000. "We clearly believe we'll be growing significantly in the overall IT market because the network will get more and more wallet share when it comes to IT spending," Goodwin says.

Terry Flood, COO of Bloomfield Hills, Ill.-based Logicalis, agrees. Among the areas in which Flood sees growth is virtualization, enabled by blade computing (consolidated chassis with server, network and storage blades) and unified communications. "I think IP telephony has really come of age," Flood says. Overall, "the network's really important," he adds. "Perhaps more important than it's ever been."