No problems, only opportunities
January is traditionally a pretty dodgy time for everyone in a commercial sense. Consumers are feeling spectacularly skint, having been paid halfway through December, only to blow it all on a combination of last-minute present panic buying and assorted dried fruit puddings destined never to be eaten.
Not content with the prospect of starting the New Year in the red, they then finance the great Boxing Day soft furnishings frenzy with a fresh infusion of debt and exhaust the last of their liquidity on the annual membership of a gym, whose treadmills they will seldom be troubling past the middle of January.
However, life goes on and business still has to be done. So to get an early idea of the kind of challenges and opportunities facing the UK technology channel we gave a few industry insiders the first of many excuses to give the gym a miss and talk to HEXUS.channel instead.
Paul Cubbage, MD, Target Components
Technology continues to develop apace, and there are plenty of new and exiting products and concepts hitting the market this year, but the biggest factors affecting the channel in my view will be macro-economic.
The cost of Chinese manufactured goods will undoubtedly rise due to increased labour costs and appreciation of the Chinese yuan. In simple terms, if margins are maintained, profit per unit sold will increase - a welcome development for the channel.
At the same time, the UK economy is in slowdown, and 2008 could see dramatic reduction in consumer spending coupled with reduced business demand as replacement cycles are extended. Demand for new systems will be adversely affected, but there will be opportunities in servicing and maintenance and in component sales as customers look to extend the useful life of their existing IT.
Any downturn will undoubtedly see a rise in business failures and withdrawals from the market. There are a number of channel players who won’t survive another downturn in business. This will create opportunities to fill the gaps and pick up new customers. As some players struggle, we will see some attractive acquisition prospects, and I expect further consolidation in the channel this year.
2008 could well be the most exciting in the channel for many years. Those businesses with a clear market strategy, with the expertise and acumen to identify opportunities and the flexibility to react quickly will flourish. Others will struggle. This year could be a very good year for the leaner, more innovative, forward thinking and savvy channel players. Those who haven’t revised their strategy in the light of the unique conditions 2008 may bring should certainly do so without delay.
Vasos Roberts, sales manager, Realtime
I feel the challenges ahead for the UK market are in the main the same as last year - margins are eroding and ASPs are getting lower. Take memory as an example: distribution now has to sell double the amount of product they would have 12-18 months ago just to stand still.
It’s not all doom and gloom though, as there are always opportunities in the IT industry. Certainly an exciting opportunity where Realtime is concerned is that the market is now becoming more educated in how important the GPU is over any other component, in the quest to have the best performing enthusiast PCs. I feel that this will certainly be reflected in the volume of high end graphics sold throughout the market this year.
Jon Atherton, VP, Enta
2008 will see even more consolidation, not just among distributors but across the whole technology industry. Continued margin pressure and the financial constraints brought about by the credit crunch mean that this could well be the toughest year for the last 5-6. The national economic slowdown will cause suffering among tier 1 retail chains and there could well be store closures.
Sandra Bayly, Senior Account Manager - IT/Hardware, GfK Marketing Services
Challenges:
- Price erosion which leads to value declines of many IT markets - where lies the future of IT products when we already see PCs given away for free? / Increased bundle activity will lead to a quick devalue of certain IT products
- Slow-down in the UK economy (inflation, price increases, debts, house prices) leads to drop in consumer spending - consumers have been over-purchasing during the past 3 years (upgrading their homes with the latest technology and spending money on gadget devices) and will be faced with realism in 2008
- Independents continue to fear dominance of Supermarkets and Multiplier - how will Independents compete in 2008?
Opportunities:
- Greater emphasis on Support Services for Supermarkets and Multiplier
- Internet will remain strong sales platform - however, Internet purchases increase while traditional sales decline (total sales volume will not necessarily rise)
- Networking in homes (for CE entertainment & IT) - due to increased Internet downloads (music, movies...)
- New product innovation
Duncan McAuley, purchasing director, VIP
The beginning of the year can be a difficult time for resellers, with the seasonal squeeze in cash flow causing businesses without sufficient reserves to suffer. As we move out of peak season it is important that resellers manage their inventory effectively in line with run rates.
Memory prices are at an all time low, which is good news for the consumer but not so good for resellers, as they have to sell twice as much to make the same profit. Margins on most technology goods are tighter than ever and resellers are having to come up with new initiatives to win business.
There are still some growth areas in the IT sector where healthy margins to be made though, such as the gaming market, which is forecasted to be strong in 2008. With both ATI and NVIDIA due to launch new product this year, performance graphics cards should be a good margin maker for resellers. Also the expected launch of a service pack for Vista should encourage more PC users to replace or upgrade their XP based machines.
Microsoft Windows Server 2008 is due for launch next month too, which should also provide a good revenue opportunity for resellers.
