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U.K. VARs have been told to batten down the hatches for a tough 2008 by channel analyst firm Plimsoll Consulting.

The uncertain economy in both the United Kingdom and the United States is driving solution providers to sit tight and weather the possible storm, and some will need to make quick cost cuts if they are to survive, according to David Pattison, senior analyst at Plimsoll. However, he said, others will be able to take advantage of the economy by making acquisitions at bargain prices.

“With pressure on sales certain to come, some companies will need to cut costs in 2008. Sadly, for most the term ‘cost cutting’ translates into ‘job losses,’” Pattison said. “Ernst and Young is already offering services to help firms implement cost reduction programs, and more of this will come as the pressure increases. My advice is to reduce costs as part of a planned long-term strategy, rather than doing so in panic mode. But don’t be too hasty—2007 was not a bad year overall, with margins averaging 1.9 percent.”

Pointer To find out why U.S. solution providers are buoyant about 2008 growth, click here.

He said growth in the U.K. IT reseller sector in 2007 has been minimal, at 0.5 percent, with 49 percent of companies seeing sales decline. However, Pattison noted also that smaller firms, with a turnover of £3m or less, lost out on sales but still enjoyed healthy margins by keeping their costs under control and by carving out a specialist area in the market. “These firms have managed to do very nicely for themselves by trading in niche products. This trend has been an important factor since 2006, and I see no reason why it shouldn’t continue,” he added.

Pattison said at the other end of the scale there has never been a better time to go on the offensive. “Companies with large cash surpluses will be able to make some dirt-cheap acquisitions in 2008 as others begin to fail,” he said. “The predators in cases like this are likely to see growth much greater than the industry average during the coming 12 months. Takeover targets are probably relatively safe for the next few months, but once the early jitters of 2008 are over, the buyers will circle and pounce.”