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Expect Continued Growth from the Channel in ’06, Analysts Say

Financial research firm Raymond James & Associates found little change in the channel for the fourth quarter of 2005 and expects little change in the forecast for 2006. IT distribution through the channel continued growing at 6.9 percent in the last three months of 2005, similar to the 5 percent to 9 percent growth seen […]

Written By: John Hazard

Dec 28, 2005

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Financial research firm Raymond James & Associates found little change in the channel for the fourth quarter of 2005 and expects little change in the forecast for 2006.

IT distribution through the channel continued growing at 6.9 percent in the last three months of 2005, similar to the 5 percent to 9 percent growth seen in the previous four quarters, the firm reported this week.

Distribution worldwide slowed to 2.2 percent growth, due to a weak currency rate, Raymond James said.

Distributors and VARs should expect to see similar numbers throughout 2006, as the trends and motivations remain the same, said Brian Alexander, senior vice president and IT hardware and distribution analyst at the St. Petersburg, Fla., firm.

The strongest sectors for distributors and resellers should continue to be notebooks, storage, networking and software, Raymond James reported. Desktops, servers and printers will remain weak.

In its own predictions event last week, IDC estimated worldwide IT spending growth of 5.6 percent for 2005 and forecast 5.5 percent for 2006.

“The strong categories remain consistent,” Alexander said.

“The driving factor behind IT decisions remains improving business productivity,” he said. “It’s not just ‘get me stuff,’ it’s ‘help my stuff work better.’ It’s all about becoming a productivity enhancer. That’s been the case for some time, but it will only increase.”

The trend is causing a blurring of the lines between volume and value added distributors, with volume distributors, such as Avnet Inc. and Arrow Electronics, receiving and pushing for more vendor authorizations.

“On the VAR side, it could mean lower prices, as they are able to source more from volume distributors who have a lower cost structure,” Alexander said. “The real impact will be on the [distributors]. It is an opportunity for the volume dealers, a threat to the value added dealers.”

Productivity enhancement is also driving consolidation, as businesses try to shrink their IT footprint, with smaller more efficient servers and storage devices, Alexander reported.

Voice over IP is a growing as a force and driving revenue in the network space, Alexander said.

“When I talk to VARs, I hear about VOIP more and more,” he said, “and as opposed to three and four quarters ago, when it was talk about the excitement, I think it is finally here and finally a factor. There is a lot of activity in this sector.”

The potential of managed services looms on the horizon, but it remains less a factor in the channel than a concept, Raymond James reports.

“It’s definitely the next big business model change, but it isn’t here yet,” Alexander said. “Everyone is still trying to figure out how to play it.”

Expect Continued Growth from the Channel in ’06, Analysts Say

John Hazard

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