IT vendors and channel partners alike are betting heavily that upgrades to data centers will begin in earnest in the second half of this year as IT personnel return to work in these facilities. While data center upgrades were not completely suspended, most of the IT focus among end customers in the last year has been on either deploying new workloads to the cloud or migrating existing ones from data centers to the cloud.
During his first conference call with industry analysts last week, newly-appointed Intel CEO Pat Gelsinger specifically noted that the downward trend in demand for Intel processors that began last year was starting to turn around. “That downward trend has bottomed out in the first quarter,” said Gelsinger.
Channel execs optimistic
Many channel chiefs and distribution executives also appear cautiously optimistic. Dell Technologies, for example, is looking forward to a more robust second half, said Cheryl Cook, senior vice president for global partner, embedded and edge solution marketing for Dell Technologies. “IT spending is accelerating,” she said.
Most recently, Dell’s Infrastructure Solutions Group reported fourth quarter revenues of $8.8 billion, which was flat year-over-year. Storage revenue was $4.4 billion, which was only down 2% compared to a year ago, while server and networking revenue was $4.4 billion, a 3% gain.
Dell is especially keen to drive storage sales in 2021 in the wake of revamping its portfolio. The company is adding front-end discounts and providing an average 20 points of margins in addition to existing back-end rebates. Partners are also free to set their own resell pricing, and actual margin may vary by transaction, region, and other factors.
Tech Data CEO Rich Hume sounded a similar note during a recent analyst briefing on the company’s pending $7.2 billion merger with SYNNEX. “This is a pivotal time in our industry,” said Hume.
Another distributor with a similar outlook is Exclusive Networks. During a recent online press conference, Exclusive Networks CEO Jesper Trolle said the second half of this year looks a lot more promising than the first half. “The first half of 2021 will look similar to the third quarter of 2020,” said Trolle.
On-premises IT still important
The reason on-premises IT environments are so crucial for channel partners is that even after 10 years of cloud services being available, the bulk of data still resides in on-premises IT environments. While demand for cloud expertise has risen sharply thanks in part to digital business transformation initiatives, many IT organizations are still heavily dependent on IT infrastructure such as servers and storage systems. Now that more individuals are being vaccinated, the expectation is there will be a greater willingness to upgrade these systems as IT personnel start to work more frequently from inside data centers that have not been upgraded in a year or more.
Entire vertical industries such as the travel sector that were among the hardest hit by the pandemic should also be in a better position to fund refreshes of IT infrastructure. Multiple funding programs that have been launched by countries around the world will also fuel a broad-based economic recovery that will boost IT spending.
Apps and digital transformation
Regardless of the rate of recovery, however, channel partners will as always need to pick their spots. For example, while many organizations may be finally able to refresh their enterprise resource planning (ERP) applications, NetSuite is betting many of them will be willing to reconsider their options as they look to digitally transform. Many of those organizations will be looking for a more flexible ERP platform in a way that melds previously separate front and back-office processes, said Craig West, vice president of alliances and channel for NetSuite. “This is a once in a generation opportunity,” he said.
In addition, West noted there are many smaller companies that targeted specific niches during the pandemic that allowed them to grow rapidly. Those organizations are now reaching a level of scale where it makes sense for them to now standardize on an ERP platform designed to meet the needs of a midsize company, said West.
Competitive channel market
Naturally, it’s hard to say with absolute certainty that IT spending in on-premises IT environments will rebound in 2021. However, in the absence of some unexpected cataclysmic event, channel partners should expect to see steady increases in the second half that will carry through into 2022. Not every deal may close by the end of the calendar year, however, because many organizations will likely proceed with caution as they continue to monitor the overall health of the economy.
In the meantime, channel partners need to remember that organizations have more options than ever. There may be compliance, security and performance issues that will require organizations to implement one of many on-premises IT options. However, cloud service providers are trying to make it as easy as possible to migrate workloads to the cloud. Oracle, for example, is now providing free migration services. The one thing that channel partners can count on with absolute certainty is the fight for every application workload is going to be hotly contested.