Change afoot in the PC market

Vendors, distributors, resellers and retailers must clarify their business models in an increasingly confusing, complex PC market, Fleur Doidge discovered at this year's Distree EMEA conference in Monte Carlo

Pockets of opportunity both extant and emerging do exist in the 2012 market. However, channel partners that want to benefit from them need to get serious about reshaping their businesses in ways that will help them gain the required agility.

That was the harmony from a range of analyst voices speaking to some 1,000 distributors, retailers and vendors at this year's Distree EMEA networking forum, held 7-9 February in Monte Carlo.

Eszter Morvay, research analyst for the EMEA personal computing market at IDC, warned delegates that the channel must step up to the challenge represented by the growing diversification of both product and user requirements across the PC market - understood as comprising desktops, notebooks and netbooks but not tablets - seen through 2011. The trend of diversification and resultant fragmentation of the PC market is expected to continue and even accelerate through 2012 and beyond, she said.

Morvay told attendees at one of the breakout sessions that while tablets are proving increasingly popular, the opportunity has not been fully explored within the enterprise and business segments, and furthermore they would not replace desktops, laptops or other PC form factors.

"I have spoken to thousands of enterprises across EMEA," she said. "And 23 per cent of companies already have a tablet PC. Our research does not say whether they have five or 5,000 tablets, but it does show that there is an opportunity out there. Another 27 per cent [of businesses] are evaluating tablets. So clearly we think there is a lot of opportunity in the enterprise space for tablets - 50 per cent of them are interested."

What is needed, she said, is for distributors, resellers and retailers to step up to the challenge of helping business understand how to implement tablets and at the same time take into account that tablets may not be the correct form factor for their specific requirements. Meanwhile, the transition from Windows 7 to Windows 8, expected to begin in the latter part of 2012, would make life even more complicated for the channel.

In the mobility arena, Apple's iOS is continuing as leader, apparently - so far fighting off increasing salvos from rival operating systems Android and even Windows, she noted.

On top of that, there is the emerging ultrabook category. All this offers more choice to the end user but makes the channel's life more difficult, she suggested.

"Enterprises and channel partners must work together to come up with solutions that target those three or four main pain points that enterprises have: security, application availability, and operating system deployment and management," Morvay said.

Trend spotting

Companies such as Acer struggled in 2011 in part because they had not moved quickly enough to change their business model. In the past, the firm had been very successful at pushing stock through the channel quickly, and as times got tougher it simply carried on doing so - causing major inventory problems. Meanwhile, brands virtually unknown five or six years ago, including Asus, appear to be flying ever higher.

Asus's route to success has been through adaptability and listening to its customers, Morvay suggested.

Jeremy Davies, chief executive of research house Context, said he agrees with the IDC point about the growth opportunity in tablet sales. Whether you choose to segment EMEA by country, sector or vendor, you can see certain opportunities, trends and challenges, he said.

Context reviewed and analysed $175bn (£110bn) worth of kit going through EMEA distribution in 2011. Of that, tablets were one of the fastest-growing product categories, and Context predicts that will continue into 2012 and probably beyond.

"The year 2011 was not so hot. By the time it finished, the growth rate of our panel had slowed almost to a standstill, to 2.2 per cent," Davies said. "In terms of where we are going, the jury is out: we don't know what is going to happen. Probably we are geared up for a default from Greece, but I am considering that we will continue more or less on the same road, with perhaps a Greek default, but not getting any significantly worse things happening."

He said many think 2012 is likely to see an overall growth rate similar or perhaps flatter than in 2011, but this does not take into account certain consistent areas of strength such as tablets. It also does not sufficiently acknowledge the strength of displays, networking-related sales, smartphone and mobility sales, and certain niche products such as special peripherals.

This has to be balanced against a decline in traditional and dominant areas of hardware sales, especially of computers, particularly in markets such as Spain, Italy and Germany, where performance brought down the overall figures for EMEA in 2011.

"If you take those three out of the panel, that is about 40 per cent of the total revenue. Then you are looking at the other 60 per cent, and there was actually some growth happening in more than 60 per cent of the panel," Davies said.

Storage figures also suffered a sharp drop overall in Q4, due to HDD shortages following on from the floods in Thailand. "The last quarter of 2011 was pretty bad," he said.

The UK in particular had "bucked the system", he claimed, experiencing growth in areas that were less strong in other parts of EMEA - a phenomenon he put down partly to a British "love of gadgets". Tablet sales were even stronger in the UK than in other parts of Europe, he said.

Davies (pictured, left) also noted that the channel may be seeing a changing of the guard when it comes to vendors. HP, for example, the leader in distribution for many years, had been experiencing steady decline in its sales through the channel and now comprises just 22.5 per cent of sales. Meanwhile, companies such as Huawei for networking, and Samsung for mobility and displays, are continuing to expand their reach as well as their volumes. Lenovo and Brocade, although not new, were both doing well through the channel.

Secudos, Otter and Riverbed were three less-well-known names with offerings that are proving very strong, he said.

"And we are talking real products here, not Facebook kind of stuff," Davies added.

Telecommunications sales through distribution are another area to watch. While currently making up only three per cent of sales through EMEA distribution, that is double what the category achieved in 2010, and it may well go on doubling each year, according to Davies.

Increased focus on SMBs

An increased focus on SMB sales would also be key, as SMBs are the ones that have kept buying, he said, and more important than that is a focus on better channel management. The companies he saw succeed were investing in boosting their channel management and seeing results, he confirmed.

"Look at your long ‘rat's tail' of sales; you should be able to identify your top 20 per cent of customers. But what about the rest of them? If you target them with programmes, that whole rat's tail - even if you sell only one more system per week through each one - when you add it all up it makes a difference," Davies said.

The transition to Windows 8 would also provide genuine revenue opportunities for the channel this year, he agreed, especially as it was really offering something new - as opposed to Windows 7, which had been more or less about updating Windows Vista, which had not proved popular with end users.

He said Context receives sales figures from 4.2 million resellers across the region, with 330,000 of those raw names offering data that has been audited as "clean" - that is, valid and usable. So the research firm may well feel confident in its conclusions.

Peter O'Neill, vice president and principal analyst focusing on technology marketing professionals at Forrester Research, told CRN in a one-on-one interview after the Morvay IDC presentation that the times have changed, with change now upon us. Yet many channel partners have so far paid little more than lip service to the now well-worn call for resellers to become "solution providers" rather than box shifters, he suggested.

He accepted that change usually has to happen slowly, especially in larger companies, but in some cases firms have been aware for more than 10 years that they need to alter their business model to stay in line with market trends.

"Change is upon us, around buyer behaviour and buyer demographics, and emergence of new technologies and delivery models. Meanwhile, Apple is taking a bite at B2B business - and then there is the emergence of app stores," O'Neill said.

He underlined that resellers and distributors need to start taking Apple more seriously in the business tech market.

"Apple is finally making some very strong inroads into the business space. It has eight per cent market share - including iPads and MacBooks - and in 2013 that share will go up to 15 per cent. And it has been doing a lot of strong work in the channel to recruit Microsoft partners. They realise their partners need to know about enterprise requirements, integration with Outlook, Lotus Notes, networking, security and so on and the Microsoft consultants are probably the best at that," O'Neill said.

App stores are springing up and will keep appearing as users increasingly expect to be able to download what they need from such a utility, without having to go through a channel partner to get to the product's vendor. The channel needs to figure out how it will fit into that world - and increasingly that will involve working out exactly what specific customers want, then creating product to fit. It means that coding skills, among other things, will be coming to the fore and increasingly sought after by all providers of technology, including resellers.

"We see partners increasing their business skills, business process consulting and so on at about the same time they are reducing their integration consulting and configuration and installation skills," said O'Neill. "Of course, companies such as Computacenter are now doing vendor management."

He pointed to Avnet's SolutionsPath programme as a way that distributors may be able to remain profitable in the 21st century channel.

There is an "enterprise-ation of SMBs", such that smaller companies no longer want to buy what they see as the dumbed-down technology that vendors often offer to more petite firms. Generation Y is also having an effect on B2B IT, O'Neill noted, feeding into the consumerisation phenomenon.

Successful vendors will help their channel to market itself better, he concluded.