CRN Monthly Technology Spending Outlook, June 2004

1. Near-Term Sales Outlook
(based on a survey of 164 VARs in May)

Solution providers' near-term sales expectations in the small- and midsize-business market surged to their highest level in the four years that CRN has been compiling data on sales expectations. The overall spending expectations index jumped to 111 in May, easily eclipsing April's 99 reading as well as the May 2000 baseline index of 100. The May 2004 index also represented the second time this year that sales expectations have climbed to an all-time high; the previous high of 109 was reached in February.

Six of the seven hardware and software categories that CRN tracks showed increases in sales expectations in May vs. April. Peripherals and Unix/RISC servers led the way, with PC servers, notebooks, desktops and networking hardware showing smaller gains. Unix/RISC servers, in fact, reached their highest sales-expectation level ever, and networking hardware and peripherals attained their highest levels since late 2000.

Networking software was the only category to register a decline in sales expectations during May, as solution providers tempered their sales expectations in that segment for the ensuing three months.

Yet the jump in overall sales expectations in May reflects channel players' rising optimism about IT spending growth across all market segments, fueled by an improving economy and continued gains in business capital investment, even among large corporations.

For example, 72 percent of solution providers polled by CRN last month said they expect sales growth of at least 6 percent over the next three months in the small-business market, and 59 percent said they expect the same level of growth in the enterprise market during that time. Both figures are all-time highs in the three years that CRN has been collecting data on the basis of market segment.

Though such rosy sales expectations won't be maintained indefinitely, the current IT sales environment is the best since the technology spending bubble burst in 2000. And because the economy is now hitting on all cylinders, the high expectations aren't likely to change for at least the next several months.

Spending Expectations Index chart

2. Midsize-Company IT Spending
(based on a survey of 200 midsize-business IT executives in May)

Technology spending is taking on renewed significance among midsize businesses, according to the May CRN Business Spending Survey.

As a budgetary priority, IT's importance to midsize companies rose significantly since February, the last time midmarket executives were polled. What's more, the gains were broad--covering all 19 of the Internet-related and hardware/software categories that CRN regularly monitors--and, collectively, marked the highest level since CRN began measuring technology as a spending priority in February 2002.

Not surprisingly, midsize businesses attached the highest spending priority to security, a trend that goes back more than two years. Other high-priority IT segments included PC servers, Web services, desktop PCs and networking software. Most categories also showed sizable increases in importance compared with results in the February survey, notably CRM, Web services, wireless, notebooks and Unix-based servers.

Technology's rising importance as a spending priority reflects continued optimism in the economy and business conditions among companies of all sizes. With recent economic data showing strong growth of business investment in information processing equipment and software, IT's level of spending priority stands to remain high among midsize companies for at least the next several months.

3. Best-Selling Brands
(based on a survey of 164 VARs in May)

On the computer hardware front, Hewlett-Packard and IBM had strong performances in May compared with April--mainly at the expense of Dell, which turned in one of its worst performances in many months. White boxes also showed increased market strength.

In all four product categories--desktops, notebooks, PC servers and Unix/RISC servers--the percentage of solution providers citing HP as their best-selling manufacturer rose in May vs. April, with particularly strong gains in notebooks and Unix servers. That represented the first time in many months that HP recorded increases in all four segments. IBM's results were nearly as positive, with its percentages rising in desktops, notebooks and PC servers. Only in Unix/RISC servers did IBM see a decline.

Dell, on the other hand, saw the percentage of solution providers citing its desktops, notebooks and PC servers as their best-selling units decline from April to May, as well as year over year. Time will tell if that's an early sign that Dell's market presence is beginning to peak after several years of strong growth, at least in the SMB market.

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.

Percentage Of VARs Citing Each As Their Top-Selling Computer chart

4. Component Availability
(based on a survey of 164 VARs in May)

Availability in the four major component categories that CRN tracks monthly--microprocessors, motherboards, memory and hard drives--deteriorated markedly in May vs. April.

While the percentage of white-box builders reporting severe component shortages changed little, the percentage reporting moderate shortages jumped sharply. For example, only 23 percent of custom system builders cited moderate shortages of microprocessors in May, up from 13 percent in April.

In contrast, overall availability in the LCD category, which CRN began tracking in February, was nearly unchanged in May. But shortages remain higher in this category compared with the others, as one-third of custom system builders reported moderate to severe LCD shortages.

The increase in shortages, however, wasn't serious enough to hamper white-box sales. As mentioned earlier, the percentage of solution providers reporting custom systems as their best-sellers in the desktop, PC server and Unix/RISC server categories increased in May.

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

*FOR A SUMMARY OF THE MONTHLY TECHNOLOGY SPENDING OUTLOOK, CLICK HERE.