Tough Times, Measured Action - Mixed 2009 Outlook
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The books on 2008 have closed and solution providers are reporting that they bucked the downward trends that dragged down the economy last fall.

Gross revenues from product and services sales increased for 46 percent of solution providers, while only 24 percent saw their top lines shrink. A near equal number of solution providers (45 percent) reported increases in their 2008 profits, while 25 percent said their profits declined.

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Ordinarily, healthy revenue and profit increases would be welcomed news for solution providers. But participants in the Market Pulse survey were witnessing a phenomenon caused by the recession.

Solution providers reported customers spending down their existing budgets in anticipation of not getting funding in 2009 or in advance of late-year budget cuts. Business-technology customers -— ranging from small businesses to large enterprises -— are expected to continue investments in technologies critical to business operations, systems that reduce costs or innovations that open new revenue opportunities.

But they’re not freely opening up their checkbooks. Solution providers report that their customers are already cutting back on orders, delaying project implementations and outright canceling projects to save money.

This paradox is part of the reason why nearly one-half of solution providers expect their revenue to increase in 2009, while 32 percent expect a decrease. The harbinger of how tough 2009 will be for solution providers is seen in the number that expect flat year-over-year revenues; 30 percent of solution providers said their 2008 revenue was relatively the same (plus or minus 5 percent) over 2007, while 21 percent expect no change in year-over-year revenue in 2009 (see “Revenue Forecast,” below). The clear shift to no change or declining revenue reflects longer sales cycles and customers not committing to engagements.

The survey paints a similar picture for profitability, as 51 percent of solution providers expect no change or a decline in their year-over year profits. Of solution providers expecting profit declines, nearly two-thirds 64 percent) believe their profits will slide by 15 percent or more this year. By comparison, 55 percent of optimistic solution providers expect their profits to increase by 15 percent or more. No solution provider participating in the Market Pulse survey expects profits to sink by 100 percent or more (see “Profit Expectations,” above).

Solution providers dependent upon conventional hardware sales expect the largest decreases in revenue and profitability. White box/custom system dealers (29 percent), hardware resellers (27 percent) and general solution providers (24 percent) anticipate top those specializations anticipating revenue decreases this year. Software resellers (67 percent), software-as-a-service providers and agents (60 percent) and systems integrators (55 percent) top the list of specialists anticipating net revenue increases.

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