2008: A Bright Outlook

Tempered optimism

That said, overall channel optimism about 2008 is in line with what Bradley said he is seeing in the IT channel. Channel members may still have stars in their eyes, however, from the opportunities and gross margins represented by new services revenue.

Bradley cautioned that it will be harder to make money in 2008 than it has been in the past, as solution providers focus more on higher-margin deals with longer sales cycles.

Customers that have spent money in recent years for technology refreshes will be doing less of that, so the onus will be on channel companies to pitch services and solutions combining different technologies.

"It's a different sales process; it's a longer sales process," Bradley said. Still, those channel companies that have laid a foundation to pursue highermargin, higher-value business have stronger prospects of increased profitability.

"You should be in a position to go mine all that foundational work you've done in the last couple of years," Bradley said.

D&H's Schwab said the channel's economic health depends largely on small and midsize businesses, which are likely to continue spending on technology. "There's still some optimism, especially in the SMB space, even though the economy is weak," he said.

Solution providers, however, say they have started to feel some pullback among customers on capital expenses, which means many product sales could be delayed as budgets tighten. Starr, for one, has been pushing his staff to close as many product deals as possible in anticipation of slower product sales.

Nevertheless, Starr said he felt more optimistic about sales prospects after President Bush signed a mortgage relief bill to help some homeowners refinance the terms of their loans to prevent foreclosures. Starr has already seen some effects of the mortgage crisis with some of his clients in the financial sector.

Curiously, in the Outlook 2008 survey, financial services remains one of the key markets of focus for the channel. Thirty-one percent of respondents identified it as a currently significant vertical; more importantly, going into 2008, 59 percent more respondents see increased focus than decreased focus on the financial sector.

However, Logicalis' Cook said he believes the financial services market will have tight budgets next year. "We will still be feeling the effects of the credit crunch, banks will be tightening their belts and vendors will start to feel this, too," he said. But other market verticals are likely to grow, he said.

The research found the highest growth area will be professional services (doctors, lawyer, architects, etc.), with 38 percent of respondents expecting increased focus in 2008, followed by IT/telecom, electronics and computers, at 32 percent; government, at 31 percent; and health care, at 30 percent.

But concern about the mortgage situation is evident in the planned decrease of emphasis on the construction vertical, where 21 percent of respondents expect a decrease in focus. Other areas of planned decreased focus include utilities, consumer packaged goods, chemical/ mining, and travel and leisure.

Still, with solution providers forecasting profit growth of nearly 30 percent on average, the positives are definitely outweighing the negatives in the outlook for 2008.