New channel market data provides clues for navigating the rough road ahead

Growth in Canadian channel revenue in the first five months of 2020 is keeping pace with the same period in the last few years. However, the outlook for the remainder of the year remains precarious.

The market would see growth of 8.4 per cent over 2020 if sales continue at the same rate, said Michael O’Neil, Channel Consultant for the research firm, the NPD Group, at a recent ITWC webinar. But that “best case scenario” isn’t likely to happen, he said.

“The good news is in very concentrated areas, and the downside is shared across a number of segments,” said O’Neil. As well, some of the product categories that are showing good results so far are subject to volatility.

The new numbers represent sales through distribution to the channel, and, ultimately to Canadian businesses that buy from the channel, O’Neil explained. The results from January to the end of May provide ideas for channel members on how to pivot for success over the rest of the year and into the future.

What’s up, and down, in 2020

Revenue in several small to mid-sized market segments has been gradually declining and this trend has continued, and even accelerated in some cases, in 2020. These segments include components, print and supplies, networking and storage. “Cloud has had a big impact on the market for storage devices,” said O’Neil. “I think it means that if you have a back-end loaded storage plan, you’re in some trouble.” O’Neil noted that one exception to the downward trend in storage devices is solid state drives, which are seeing good growth and margins.

“Software is and has been a good news segment for channel sales in Canada,” O’Neil said. The software category makes up for 20 per cent of channel sales and grew almost eight per cent in the first five months of the year. Sales in the gateway and firewall and storage utilities segments are up substantially, while revenue for content and collaboration software is flat. The software market has consistently produced more of its revenue later in the year, said O’Neil, “so a down or volatile market will have more impact here than in other areas.”

The compute category “is the engine powering the channel this year,” O’Neil said. Revenue is up year-to-date by roughly 20 per cent in this segment, which accounts for 25 per cent of channel sales. Not surprisingly, the surge in sales is concentrated in mobile devices – notebooks, built-to-order notebooks and tablets. The “flip side” to this growth is that there is “substantial slippage in both selling prices and margins for top product,” O’Neil said, noting that OEMs are boosting returns through channel programs.

Focus on these areas for success

O’Neil suggests that channel partners should focus on supporting “work from anywhere, especially via a consumption-based MSP-type model.”  This is consistent with the strong sales in notebooks and tablets, as well as other equipment like PC headsets, docking stations and webcams. Applications targeted at a mobile workforce, such as workflow process software, will also be an important category.

As the recovery response moves forward, O’Neil anticipates that there will be more interest in analytics, digital transformation and data integration. He also expects greater demand for cloud resources and integration as providers seek to expand in the small and medium-sized business market.

As for vendors, they may need to offer more program support for high volume, low margin sales,” said O’Neil. “Everyone in the industry is working through a set of balances as they plot a path to the new normal”.

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Jim Love, Chief Content Officer, IT World Canada

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