VARs See No Signs of Imminent Recovery

Tight credit, slow sales cycles and customer cost-cutting still prevail in market.

The recent news of Microsoft’s first negative quarter, highlighted by a billion-dollar-plus plunge in profits, sent shockwaves through the financial and computer worlds, fanning doubts the tech sector is not even close to recovery.

However, the vendor’s bad news caused little surprise to VARs familiar with the daily realities of tight credit, slow sales cycles, and customers cutting expenditures on everything.

In its recent financial results for the last three months of fiscal 2009, the world's biggest software company announced revenues of $13.1 billion, down from almost $16 billion for the fourth quarter of 2008. Profits for the fourth quarter of fiscal 2009 dropped 29 percent to $3.05 billion, down from $4.3 billion over the same period last year.

While some of the revenue and profit drop was probably due to customers delaying software purchasing until the arrival of Windows 7, Microsoft has also been affected by the slowdown in computer sales and the slump in the overall economy.

"Our business continued to be negatively impact by weakness in the global PC and server markets,” said Chris Liddell, Microsoft chief financial officer, in a prepared statement. “In light of that environment, it was an excellent achievement to deliver over $750 million of operational savings compared to the prior year quarter."

IDC expects customer spending in the worldwide server market to decline almost 30 percent to $10.6 billion in the second quarter of 2009. If the researcher is correct, this would represent the fourth consecutive quarter of year-over-year spending decline for servers, and a further acceleration in the pace of worldwide market deterioration.

IDC has forecast a 22.1 percent year-over-year drop in server spending for 2009. Recently, it reported that worldwide PC shipments fell 3.1 percent in the second quarter of 2009.

Tight purse strings prevail

“Companies are not just spending less on Microsoft products, they are spending less on everything,” said Scott Spiro, CEO, Computer Solutions Group, a VAR in Los Angeles. “Our customers are taking a hard look at all hardware, software and services spending.”

Microsoft’s profit problems reflect a tough economy, said Don Begg, CEO of San Diego-based Do IT Smarter, a master managed services provider.

“Companies are spending frugally, entrusting VARs to keep them up and running with the equipment and services they already have in place,” said Begg. “Many SMBs we do business with want to continue using Windows XP and are not thinking about buying Windows 7.”

Of course, Microsoft and a big chunk of the computer industry are expecting lots of sales and service action from the arrival of Windows 7, slated to appear later this year.

TAGS: Windows,Microsoft,server,economy,VARs

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