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Why one analyst says one per cent IT growth isn’t a bad thing

Channel StrategyDistribution

With an eye on the distribution market, one analyst is predicting a growth rate of one per cent by the end of 2013 – and he’s saying that’s a good place to be.

One per cent? Well, that may not be exactly dazzling, but a one per cent growth rate is actually pretty good, considering the state of the economy in 2013, says analyst Daryl Ryce of the NPD Group, a market research and advisory firm.

In Q2, the distribution market experienced five per cent growth, with 10 per cent growth happening in July and August. For the end of the third quarter, Ryce said he expected the market to grow about five to six per cent, but Q4 would be flat. That means by the end of this year, we might see just one per cent growth, he said.

“When I show people a positive growth number, we go wow, we’re not seeing too much of that,” Ryce said, speaking during a workshop at CDN’s 11th annual Channel Elite Awards on Wednesday as a guest of Tech Data Canada. He added it’s important to run the numbers against what’s happening in other industries.

“The food world is down, single digit, negative growth. We’re talking about the gaming industry right now, which is down 17 per cent,” he said. “We’re talking about retail IT hardware down about nine per cent overall. Consumer electronics at retail [is] down about 14 per cent.”

Among the top five categories of goods driving revenue, Ryce said the best performers are, in order: networking devices, notebooks, desktops, PC chips, and toner.

While a high number of sales in networking devices may make sense, it may be a surprise notebooks and desktops are still doing well. After hearing so much about the death of the PC and the rise of mobile devices, it might seem strange smartphones and tablets haven’t massively outsold notebooks and PCs. Yet just because a trend is apparent in the consumer market doesn’t mean that trend is reflected in business, or that the distribution market is embracing it nearly as quickly, Ryce said.

A good example is Windows 7, which many consumers have abandoned in favour of Windows 8. Yet many businesses are still using the older version within their offices, he said.

And he added notebooks are showing a very solid performance, which have seen three years of positive revenue growth and a rise in devices’ average price by four per cent. Tablets haven’t really made a dent in distribution, he said.

And as prices haven’t taken a plunge, distributors should take heart from that, he said. Instead of dropping, he expects the overall pricing in this market to increase by six per cent this year.

So what does this mean for distributors? Well, if anything, that means they should keep their prices high rather than lowering them to try to attract more buyers, Ryce said.

“I like to preach this whenever I talk to people – products, when you deal with a market that’s flat or negative growth … products are being purchased based on need rather than price,” he said. “So the ideal situation is, if you’re dealing with a declining market or flat market, you typically put your pricing model at a higher price point. There’s no point leaving money on the table.”