Whew, did you see that!?
It was hard to miss. The world pretty much shook in the wake of the Wall Street meltdown earlier this week. It’s scary to think the people who are supposed to watch your money can’t keep their own companies solvent.
Unfortunately, the punishment for this ineptitude is going to affect far more people than just the ones who caused it, and chances are the IT channel will feel its share of the misery.
Despite the higher-than-expected economic growth of the last completed quarter – 3.3 percent – the current economic picture is far from rosy. Even before last week’s bailout of Fannie Mae and Freddie Mac and this week’s meltdown, with Lehman Brothers going bankrupt and AIG getting a government bailout, layoffs already were rising, corporate profits were declining and the housing slump continued.
The situation is likely to grow dimmer in the foreseeable future. Hewlett-Packard this week disclosed it is cutting nearly 25,000 jobs in the wake of its EDS acquisition. Of course, Wall Street reacted positively – and we know how reliable that is! – but you and I know that 25,000 people without jobs is not a good thing.
To make matters worse, Dell and distributor Ingram Micro warned on Tuesday that demand for technology products is weakening. Ingram Micro cut its third-quarter revenue and profit forecast, saying softness in July and August has continued through September.
I hate to be a prophet of doom, but more bad news is sure to follow. These things don’t happen in a vacuum.
And what this all portends is a softening of demand for channel business. Now, I hesitate to put money on that bet because, paradoxically, a lot of the solution providers I keep in touch with tell me business is doing OK or better. One unified communications specialist told me this week he’s had three of the best months ever.
Go figure. But, of course, it helps that he specializes in a hot, transformative technology that replaces cumbersome, expensive systems.
And the same goes for MSPs (managed services providers). Channel companies that have invested in the model, and have become profitable at it, should weather the storm all right.
At greater risk are channel companies that rely disproportionately on project work and hardware deals. Unless the projects and hardware involve transformative technology, such companies will have a harder time of getting through the current economic slump.
In addition, consumer sales are likely to remain soft. People who already have been laid off, or are living in fear of losing their jobs, won’t rush to replace their computers or to buy a new printer or iPhone. From a sales standpoint, the coming holiday season looks anything but bright.
A potential silver lining has to do with the weakened dollar. Solution providers with proper reach, or with the aid of their vendors, can make a case for affordability to companies abroad. With the advent of remote service-delivery tools, enticing foreign companies to pay for services provided stateside is not out of the question, and already is happening. But even money from abroad has limits, especially since other economies are starting to slow down as well.
Savvy solution providers will still be here once the economy rights itself, whenever that may be. As it looks now, the next 12 months are likely to be challenging, so hang on to your good customers, invest wisely and keep an eye on the financial news, as depressing as it may be.
Pedro Pereira is editor of eWEEK Strategic Partner and a contributing editor for Channel Insider. He is at pedro.pereira@ziffdavisenterprise.com.
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