Canalys: A profitable year for the channel

The channel has managed to navigate one of the most challenging years so far in a positive way

This year is going to be remembered primarily for the Covid-19 coronavirus pandemic, but it will also go down in the channel ledgers as a period of profitability.

The technology sector has had a stronger year than many would have expected at the start of the pandemic. Over the past three quarters, the tech industry as a whole has increased by 5%. In the channel specifically, distribution across Europe, the Middle East and Africa (EMEA) has increased by 4%, as have resellers, according to Canalys.

Steve Brazier, president and CEO of Canalys, used his keynote at the analyst firm’s Channel Forums event to talk about the economic state of the market. He said that while GDP across EMEA was expected to fall by 9% this year, the tech world had defied gravity and come out fighting, helping customers solve real problems caused by Covid-19.

“Technology has won, the channel has won, distributors have won – it’s actually turned into a very good year and we couldn’t have predicted that,” he said. “The channel in Europe will also have the most profitable year ever.”

A number of factors have helped create that result, including higher revenues, but there had also been a focus on spending and costs.

“You are spending a bit less. You are travelling less and probably spending less on consultants. During the first and second quarters, when we were all worried about the future, you cut costs and you have been able to maintain many of those cost cuttings. As a result, your operating margin has gone up and your SG&A [selling, general and administrative expenses] has gone down,” said Brazier.

“It is both the success of the industry and the cost-cutting measures we were able to make that means this will be the most profitable year ever for the channel, and a very healthy channel we are too,” he added.

“Technology has won, the channel has won, distributors have won – it’s actually turned into a very good year”
Steve Brazier, Canalys

Brazier said the channel could have done even better had there not been supply issues around some components and products. The shortage of air freight meant delays crept in and the demand was so strong that there was not the capacity in certain segments, like panels and processors.

“The one who has supply wins because the customer will buy whatever you have got,” he said.

The big resellers have done better than smaller resellers, and volume has performed well compared with advanced solutions. Government spending has been higher this year, which has been hoovered up by some of the larger players already on the approved lists.

Resellers serving the small and medium-sized enterprise (SME) market saw most of their smaller company customer base shutter operations and reduce spending, which hit them harder. As a result, corporate resellers improved their revenues by 6% across EMEA while smaller partners only managed a 1% improvement.

Brazier added that this was set to be the most profitable year for the players in the PC industry, with Lenovo, HP and Dell in very strong positions. Home working has driven volume sales of products and that has translated into it being a positive year for the hardware players.

“We are confident that demand will remain strong for at least the next 12 months in the PC market,” he said. “The PC market has had a sea change and it is fundamentally bigger now than it was a year ago.”

Other winning areas of technology included collaboration tools, accessories, remote desktop solutions and public cloud.

Anything to do with an office has been hit hard, with networks, on-premise servers and storage, and printers all being victims of the pandemic.

Brazier expressed some concerns about security, pointing out that the level of spending on remote tools had not been matched with the security needed around that. As a result, there could be increased breaches. “We think a lot of that investment has not been sufficient,” he added, pointing out that there were already worrying increases in ransomware attacks.

“There is definitely a growth opportunity to protect your customers from ransomware as we go forward,” he said.

Brazier said that if SME customers continued to return and projects that had been delayed were restarted, the channel could continue its growth.

“In the first three quarters of this year, the channel grew 4% in revenue terms, which, under the economic circumstances, was a phenomenal result. We predict that next year it is very reasonable the channel will grow by 5% to 10%, and some will outgrow that as well. The opportunities are enormous,” he concluded.

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