Will IT Channel Be Spared the Worst of The Economic Gloom?
Despite the financial doom-and-gloom, there are some critical differences between now and the 2001 recession, and they strongly favor the channel.
There's an awful lot of financial doom-and-gloom circulating around right now, and plenty of comparisons being offered between 2001 and our current economic malaise. Still, there are some critical differences between now and then, not the least of which is that back then, the technology sector was, in fact, the primary culprit.
The Y2K and Internet bubbles sent tech shares sky-high and plenty of channel vendors, distributors and resellers were leveraging those bubbles. When that downturn hit, the high-tech industry took it front-and-center. This time, the main culprit is the real estate bubble. Of course, Wall Street's incessant greed played a role in both dramas, but this time the main focus of that greed has been financial derivatives and unsecured mortgages, not high-tech and Internet company stock prices.
Another issue is that, despite the current drumbeat, it's still not definite that we are experiencing a recession, although plenty of market analysts and economics would dispute that. However, a new economic forecast from the University of California-Los Angeles (UCLA), which received little attention outside of California, disputes this. Now, the UCLA economists were way out in front of the 2001 recession, predicting it when the boom times were still rolling. They were vilified (and ignored) for calling that party over, but history proved them correct. Now they are cautious, but contrary. The UCLA forecasters see the economy slowing, with growth slowing but not reversing. They note that the economy is being spared the huge job losses that are usual in a true recession. Yes it's hard to get a job right now. But it's also a lot harder to lose one that it was back in 2001.
Meanwhile, channel companies such as Hewlett-Packard, Tech Data and Microsoft are reporting strong numbers. They are being helped a lot by their strong international sales and the dollar's weakness, both of which are compensating for the U.S. slowdown. And at a recent IDC conference, speakers noted that it's consumers, not the Fortune 1000 enterprise companies, which are impacted by the housing crash.
Still another bright spot for the channel is that the SMB market is holding strong. IDC has lowered its forecast for IT spending in the U.S. and Europe, but it is still going to grow year-over-year. It's just expected to grow less. And while the developed world slows, emerging markets like China, India and Brazil see their demand growing for IT products and solutions. That will ripple right through the channel. IDC says IT spending in these countries should grow between 10 and 20 percent this year.
Finally, it's important to remember that a lot of the IT channel's specialties like security, virtualization and software-as-a-service (SaaS) are still either critically important or demonstrate a solid ROI for the business customer. In a downturn, businesses still are interested in technology investment that saves them money. The channel is skilled at delivering this, and it shouldnt be afraid of stepping up and offering its value equation in what the mainstream press seems to insist is a dire time.