As the end of the financial year looms, resellers should be sharpening their selling tools and drooling with anticipation. Last minute spending and balancing the books means opportunities for profit should be rife.
GfK research director, Chris Herbert, stepped straight up to the plate and said resellers should look to the middle market and the SMB space for a good chunk of the spending action, but warned the government space was waning.
That was the only negative note in a report loaded with silver, gold and the colour of dollar bills of all denominations, although the market — it has to be said — may be a little quieter than usual for the time of the year.
According to IDC, the Australian IT market is worth $23 billion and software services are growing fastest.
IDC’s SME vertical director, Kourosh Ghassemi, said the SME market was on a roll thanks to a strong Australian economy and mighty dollar.
According to Gartner, outsourcing will be the major area of IT services growth.
Industry experts claim the June action is not as heated as in years gone by, but there are pockets of strength. Now the market seems to be on an upswing (although the strength of the rebound generates heated debate), users are going channel shopping — albeit selectively.
While the IT industry is seeing growth — and not lagging behind the overall economic rebound — it wasn’t booming, Alstom IT’s, Greg Newham, said.
“It’s a little patchy, but it’s steady,” he said. “We’re seeing growth over last year. Areas of growth include software — the thin-client space — and there’s also success in the Sun server range.”
Newham said recent promotions — including buy three/get one free — were boosting sales.
The refresh cycle was also contributing to the upswing, particularly in the low-end of the market.
Gartner said the PC industry growth would be driven by replacement purchases in 2004 with nearly 100 million PCs to be replaced this year and 120 million in 2005.
Expiring OS support will play a significant role in driving PC replacements going forward.
As such, replacement purchases will drive worldwide PC shipments to 186.4 million units in 2004, a 13.6 per cent increase from 2003.
“The volume of replacements this year and next year will surpass the number of systems replaced in the run-up to Y2K in 1998 and 1999,” Gartner said.
“Refreshing the hardware — that’s where the action is in the short-term,” Newham said. “But long term, the hot areas include services and software.”
Helping users deploy management tools (including WebSense) are areas where resellers can help companies productively use the Internet.
Altech’s general manager of sales and marketing, Safa Joumaa, said many of the opportunities in the market — particularly in the SME and SOHO space — were due to the Y2K refresh.
“These players are also taking the opportunity to upgrade to new release technologies,” he said.
According to GfK’s Herbert, the corporate sector is in its fifth year of the refresh cycle.
Going forward, Joumaa said many users would be looking to enter into the 64-bit momentum while others would jump onboard Intel’s new Line Grid Array (LGA) technology.
“Both of them will allow a vast extension to the computing capabilities a Y2K machine user would be used to,” he said.
And while industry watchers say the uptake in IT spending is a result of the refresh cycle, managing director of system integrator Data#3, John Grant, said that scenario did not represent the whole picture.
He said the uptake was also a result of organisations wanting to move towards innovation and the application realm (and select solutions where information can be presented via portals, for example).
Acknowledging the economy was a mixed bag, Grant said there was a greater demand for IT projects as many companies were intrigued by Web services and its impact on the overall business.
“No doubt the environment is more positive now than in the last three years,” Grant said. “There’s a growing demand for projects that take the business forward.”
As a result, the company has had success this past year in areas such as VPN security, wireless networks and network management.
Grant said server consolidation, business continuity, security and networking were other key growth areas.
He said corporate spending was winding down on the maintenance and support side — instead the cash is flowing into innovation projects (delivering applications to mobility is a prime example).
“There’s a real opportunity to sell the infrastructure, hardware and software and how it all relates to the Web,” Grant said. Within the notebook PC arena, while the government sector was expected to see minimal business outside of key tenders as the full impact of an election year bit, the top two areas for potential growth were education/healthcare and the combined manufacturing/resource/construction sector, according to an IDC survey.
“It will be important for vendors in the notebook market to recognise the need to focus on key verticals, and push peripheral products,” IDC said.
For Australia’s largest PC vendor, Optima, the notebook push — although a new market for the company — has helped fuel a 30 per cent growth in revenue this financial year.
Managing director of Ingram Micro, Steve Rust, agrees the mobility craze has reached fever pitch in Australia, along with a heated interest in wireless technologies.
“The market is stronger this year than last — and while there’s still some slowness in the enterprise — there’s more confidence overall across various sectors,” he said.
Sales across most sectors were up 20 per cent, according to Rust.
“The growth of notebook sales this year into the SMB space was very significant,” he said.
Declining notebook, desktop and server prices in 2003 fuelled overall sales, along with users’ fascination with productivity tools, he said.
In addition to high growth in mobile computing, thanks to the power-packed solutions, software had also been a hit, Rust said.
“We’ve seen a growth in Microsoft technology sales this year over last year,” he said.
Sales of SBS Server, for example, were encouraging, along with the rollout of licensing solutions around OpenValue.
“There’s genuine optimism when we talk to resellers and vendors,” Rust said. “They are now taking a positive approach.”
In gearing up for the June spending crunch, Ingram Micro has added new faces to its call centre and extended its trading hours by two-and-a-half hours.
The move was necessary, Rust said, given June sales were expected to be 50 per cent higher than in a regular month.
On the software front, product manager for Microsoft Business Solutions (Axapta, Navision), Yolanda Delport, said resellers could help customers with accessing data quickly and easily at this time of year.
“Financial year-end is an extremely busy time for most decision makers,” she said. “When we talk with customers over this period, their focus is around effective and timely reporting.”
So what can resellers do to capture extra dollars?
Ingram’s Rust suggest they make a concerted effort to generate additional sales in June — when users are conscious of book balancing, tax incentives, and all things budget related — by offering complete projects.
“Knowing customers is the first rule,” he said. “Take the new technology or solutions out to the customers at this time. It will help stimulate interest and will bring the money out of the wallets. It’s a good time to spend, as customers psychologically want to complete projects — clear the slate — and get ready for the next financial year.”
And while it sounds simple, Altech’s Joumaa said resellers needed to stand out from the crowd and take advantage of the Y2K refresh and the consumer’s growing interest in newer technologies.
“Now is the time to be going through all previous customers and making contact with them,” he said. “With so much accessibility to places such as Dell’s new kiosks or Harris Tech and Harvey Norman’s emerging stores most resellers will get whitewashed when it comes to battling for the customers dollar.”
In addition to beefing up relationships, NetComm executive director, Michael Boorne, said that during June, resellers should be successful selling hardware peripherals and software (including routers/DSL modems) in the under $300 to $1000 range.
At this time, consumers — particularly the SMB and SOHO space — weren’t going after the big ticket items. Instead the smaller items were being scooped up because of tax breaks.
“The $300-$1000 range can be written off by a total of 37.5 per cent per annum,” he said.
NetComm, which is forecasting a 60 per cent profit rise for financial year 2003/2004, saw huge opportunities in broadband, and high-speed Internet connections for business and the home, Boorne said.
With the growth of broadband, when a consumers signs up with a provider such as Telstra or iPrimus and the hardware isn’t provided, VARs can step in and provide the modems.
“We’re seeing a big growth in sales of middle to higher DSL modems [with wireless and network features built in],” he said.
The company had also grown the number of wireless Internet hotspots in Australia by almost 40 per cent since entering the market in February this year.
Boorne expects the company’s hotspot solutions to generate more than $2 million in additional revenue over the next 12 months, while the sale of ancillary products such as modems and devices for wireless connectivity to also significantly increase.
Ingram Micro was also preparing for the bulging broadband wave and was helping resellers uncover where the opportunities were in the channel, Rust said.
The company recently hosted a storage networking and security showcase focusing on broadband.
“Resellers can access new revenue streams through broadband as well as convergence,” Rust said. “Convergence is the other driver that’s starting to take off.”
Wireless technology as it relates to mobility was another hot area to think about, he said.
Nortel’s general manager of enterprise for A/NZ, Nick Avakian, agrees resellers can look for opportunities in convergence.
He pointed to a host of focus areas for VARs including IP telephony, data networks and security, and suggested customers were spending up in these areas this month.
“A lot of organisations are upgrading software so they are IP-ready and deploying IP handsets,” Avakian said.
On the data network front, companies want to ensure they have quality of service on the networks so they can take advantage of voice, video and data applications.
The company is banking that its latest multimedia platform will pick up steam next year.
To date, CSC is the first site deployment.
And while analysts claim government spending is waning, Avakian said Nortel was picking up a growing number of contracts in the public sector, along with financial services, manufacturing and with major corporates.
“Optimism is driving spending,” he said.