Channel facing profitability threat

Omdia has raised concerns that the channel is facing a profitability crisis sparked by a number of factors, including geopolitical uncertainty, component shortages and the impact on pricing.

With vendors shortening their pricing windows for the channel to ensure they can react to component shortages and quote at the market level, predictability in the market has come under further strain.

According to research from Omdia, those negative market conditions are now expected to hit first-quarter profits, with almost 60% of partners globally indicating that they expect double-digit declines in the first three months of the year.

The impact the Iran war has had on energy prices is one factor, but the increasing tendency by hardware suppliers to refuse to hold prices until the point of shipment is eroding customer confidence, with the threat of increased costs adding to the reasons to hold off on pulling the trigger on a purchase order.

Sharing the research results on social media, Alastair Edwards, chief analyst at Omdia, said vendors’ actions were making life increasingly difficult for partners.

“With many hardware vendors now refusing to hold hardware prices for partners until the point of shipment, or cancelling orders even after a purchase order has been received, partners are left carrying greater levels of risk. Those tied into contractual pricing agreements with customers face a potential disaster,” he stated.

“Conflict in the Middle East threatens to intensify the crisis, with oil prices surging and supply chains disrupted. Distributor profits will come under greater pressure, particularly if delivery and logistics costs rise sharply. If conditions continue to deteriorate, the risk of channel bankruptcies is set to increase dramatically,” he added.

Although profits are coming under strain, those quizzed by Omdia about revenues shared more optimism, with lower levels expecting a decrease and a third looking for growth.

The results from the large, publicly listed players in the channel have been positive, but those covering trading in the first quarter have yet to come out. Since the end of last year, the pressure to pass on price rises has increased and become more of a challenge for resellers and managed service providers (MSPs).

The expectation is that the pressure to pass on price rises will start to show on the bottom line as the channel moves through the first quarter and deeper into 2026.

Edwards added that the factors impacting first-quarter profitability were not moving anytime soon and would continue to have an impact through the rest of the year.

“Profit challenges in the channel are highly likely to worsen in the coming quarters. With shortages persisting (if not worsening) for 12 months or longer, the technology industry faces a reckoning. Better collaboration between vendors, partners and distributors – and a greater willingness to share financial risk – is needed across the ecosystem,” he said.

The Iran conflict has been raging for more than two weeks, and the price of oil has risen sharply, but there are signs that even in that situation, the markets are adapting to conditions, which could help improve confidence.

“Oil prices are steadily marching higher again, increasing inflation risks and threatening global growth. However, with the initial shock of war in the Middle East fading and investors getting used to the new normal, the FTSE 100 has crept into positive territory at the start of the week,” said Susannah Streeter, chief investment strategist at Wealth Club.