Spendthrifts: seasons to be cheerful

Fourth-quarter sales have long since been an essential counterpoint to the summertime blues. But Gareth Kershaw argues that the seasonal fluctuations rocking the industry may become a thing of the past.

Great British summers. So predictable that you can almost set your watch by their seemingly metronomic uniformity. Just take this year.

Man Utd played Arsenal in the Charity Shield again. Then they began their defence of the Premiership, yet again. The England cricket captain gets the sack, together with the head of selectors, and they are replaced by two other gentlemen who are palpably even less qualified for the job than those who have been given the boot. The hosepipe bans came into force up and down the country, only for it then to rain for two solid months.

And the IT industry went to sleep.

It has always been an accepted part of the IT business - particularly in the channel - that sales and financial performance are seasonal. That fourth quarter is, and always will be, the busiest period of the year.

The third quarter is the quietest, taken as read in the same way that it is assumed revenue will peak in December and March, and that sales will fall drastically between June and September.

As frustrating as this can be for the channel player, it has at least always been one of the few things that can be relied upon in an increasingly unpredictable market. Until now that is.

There are growing indications that the seasonal nature of the IT channel is in decline and that purchasing will flatten out across the year. Observers from markets as diverse as display, networking, printing, memory, security and multimedia all agree that in the past two or three years, sales have adopted a much flatter pattern and that the lines between the once clearly defined quarters are becoming increasingly blurred.

Bernie Dodwell, business development and marketing manager of security distributor Allasso, says the network security market is now more buoyant in the third quarter than it is at almost any other time of the year.

"The UK network security market is definitely growing through the summer.

August was our biggest month in 1998."

The trend seems to be continuing this year with July being a good month for both Allasso and its sister company Integralis. Other companies are undergoing similar changes.

Geoff Nelson, sales director of reseller InterNetwork Management Systems (IMS), says there has been a noticeable shift in IMS' selling patterns.

"Sales are certainly becoming more evenly spread throughout the year," he adds.

Rob Musson, divisional director at Professional Display Systems, goes further: "So far, 1999 has been different. We are finding that the lines in relation to IT purchasing habits are far more blurred between each season and each individual quarter. The market isn't following any traditional pattern this year and it doesn't look like it will do so either."

He believes that while everyone seems to have their own pet theories as to why this may be happening, in reality there are a number of factors behind the shift. As a trading year, 1999 is something of a one-off. The year 2000 is one factor - with users freezing their IT spending until after the date change. But having discounted the year 2000 spending trend, the underlying reasons behind the change begin to emerge.

Simeon Joseph, product manager for professional graphics at manufacturer NEC, believes the change in purchasing habits is due to a number of social and economic reasons. The internet in particular is driving a complete market turnaround. He argues that it's no longer about how technologists bring products to the market, but how consumers approach their spending in the market.

"Now it's much more about how consumers, our customers, approach the market. Due to the advent of technologies and applications such as online ordering and 24-hour shopping, customers can increasingly have what they want when they want it," says Joseph.

"As a result, the traditional nine-to-five corporate culture is now dead and buried and is being swiftly replaced by the 24-hour, seven-days-a-week business model. This allows customers to place their orders whenever they want, unrestricted by old-fashioned concepts such as opening hours."

He adds: "People are shopping and doing business at different times and that in turn is conducive to a more stable, evenly distributed cash flow model. It's a win-win situation for everyone. Consumers get what they want, suppliers have a lucrative 24-hour presence in the market, and the employment market wins too because of the need for extra service and support."

Duncan Crook, managing director of distributor Equinox, says in addition to consumer pressure in the market, the seasonal balancing has much to do with changing corporate financial infrastructures. "Many large corporates always used to time their year-ends to coincide with the government's fiscal year-end at the beginning of April.

"But the traditional dates have been dumped in favour of ones that make more logistical sense for individual companies. At Equinox, we recently moved our year-end from the beginning of April to the end of the month. This has enabled us to realise significant improvements in our financial performance. We can see this becoming the case with more and more companies," he adds.

Ironically, government is also undergoing changes in a similar vein.

According to Aled Miles, UK regional director of Symantec, this is having quite a significant effect on public sector spending habits - and therefore on large portions of the channel. He says educational and governmental departments and agencies had a habit of dumping what was left of their budgets at the end of each fiscal year, mainly to avoid budget cuts the following year.

But now there is a great deal more public sector accountability as the general public expects the government to be more up front when it comes to the taxpayers' money. As with the private sector, this encourages a much more even spending policy.

Miles also points out that computer problems rarely occur at times when it's financially convenient, and that this is driving the trend towards a year-round market. "Although budgets are seasonal, technology isn't.

When a business needs to rebuild its technological infrastructure, the time of year is irrelevant.

"Viruses don't care what time of year it is when they infect networks - they just attack. Users are beginning to recognise this reality and are buying IT equipment when they need to, regardless of what time of year it is," he says.

Andy Brown, analyst at research company IDC for the European PC market, agrees that changing year-ends could be key for companies, especially as services become more central to the IT sell. "Firms will buy when they have the money and with year-ends changing - it doesn't follow that companies will all have money at the same time."

Customer spending appears to be evenly spread as the nature of the relationships between IT suppliers and their clients become more service oriented. "We don't rely on one-off sales. We pursue long-term relationships with our customers. Services and consultancy work tends to be ongoing and significant installations are planned not by calendar month, but by need," says Nelson.

But could the reason that recent summers have been busier than usual be down to something more trivial? Joseph doesn't think so. "It's not a question of people thinking, the weather's not very good, bang goes my summer holiday. It's not the seasons changing either - it's the market itself," he says.

He concedes that there is a definite fear factor at work in high-pressure IT sales jobs. "Pressure has always been a feature of sales jobs. There may be some truth in the theory that shrinking growth and tighter margins are making some people pause and think twice before going on their usual summer holidays. If times are hard, people will be loath to take their eye off the ball."

But Joseph insists there is much more to it than meets the eye. "The perpetual 24-hour market that is now emerging in the UK is really a culture thing. We're following the Americans in recognising the benefits of a year-round, global IT market. The global view is that a client in the UK may be asleep, but someone in Japan might want one of your products.

Having the ability to fulfil that demand makes for a broader and stable base upon which to build."

He adds: "The UK channel is constantly being encouraged to add value and especially service to its portfolio - the global presence, together with the service oriented sales model, are the perfect catalyst for a more even annual cash flow."

Jamie Kelley, marketing manager of D-Link, believes the channel can use the flat-spending model to its advantage. "The pattern of quarterly activity is changing, but why focus on quarters when cash flow has to be managed monthly? You have to reason it out.

"D-Link tries to spread demand in a deliberate move to avoid seasonality.

This is done in the same way that you would control water from a running tap - by turning in one direction or the other to increase or decrease the flow. D-Link does this by advertising and marketing all year round - not just in the busier quarters and by managing recent product releases."

Done correctly, this can really benefit cash flow and, ultimately, the entire business, says Nelson. "It's possibly because we specialise in software, and in specific network management and analysis packages, that IMS is less affected by these pressures.

"But the long-term service-based strategic style of sell makes it better for IMS in terms of resource and inventory planning. This naturally affects cash flow. We are rarely involved in peaks and troughs in terms of sales. As a result, it's easier to maintain a balance in our income stream."

There is a real opportunity here, says Crook. "This balance in seasonality is really a good thing for the channel. The ideal scenario would actually be to take exactly 25 per cent of yearly revenue in each quarter - this would be the perfect recipe for a very healthy cash flow.

He adds: "Admittedly, that's not going to happen as there will be an element of volatility, but even a limited levelling out will be good for the smaller channel players. If cash flow is evenly balanced throughout the year, it allows competition with the big boys."

But there may be a downside. The clouds on the horizon show that manufacturers may choose to ignore a move towards a balanced model. In the same way that quieter periods will become busier, it follows that busier periods will become quieter. If this is to be the case, and manufacturers still expect bumper crops at certain times of the year, then extra pressure will be placed on the channel during these periods. By the same token, if the balanced model becomes the norm, pressure on the channel could be year-round not seasonal. In this context, the summer period, will be no excuse for slow sales.

Although some people will bury their heads in the sand, Crook urges resellers to embrace these changes if they want to survive. "It comes down to attitude and application. It all depends on how you view change. Having talked to several resellers about initiatives such as ecommerce, I was shocked to find that many saw them as threats to their businesses rather than a chance to balance revenue."

He adds: "If resellers look at a decrease in seasonality as a threat, then they might as well pack up and go home now. These changes will happen in IT and, if resellers don't react, they will go out of business."

Miles also believes that now is the time to act. He encourages resellers to think about how seasonality affects them. "To make the most of it, resellers have to learn from those with seasonal businesses and those who have taken action. Try marketing out of season and change your business mindset so that seasonality is not an excuse for poor performance."

It seems that a decline in seasonality could keep cash flows healthy at a time when the market desperately needs a foil for falling margins.

Resellers must be prepared for the fact that, for the foreseeable future, there will be no quarter given - whether any quarter is taken at all, is up to them.