A ray of light in a stormy channel

IT revenue has been weathering a reversal of fortunes in several sectors, but there are some pockets of prosperity, including in the UK, writes Jonathan Wagstaff

This year has not had an auspicious start for European IT channels, with trading conditions at times being as tempestuous as the winter gales which have lingered into early spring.

The last quarter was a challenging one for European distribution as a whole, although some countries suffered more than most, and others bucked the trend, notably the UK.

Context's UK distribution-panel revenue grew 1.2 per cent YoY in Q1, outperforming Germany (0.3 per cent), Italy (-0.3 per cent), and France (-4.7 per cent). In terms of vendors, the standout star in the UK for Q1 was HP Inc which saw a 10 per cent YoY increase, even exceeding the impressive 5.4 per cent growth in Germany.

The picture for its sister company HPE was not so encouraging in the UK, falling -14.5 per cent in Q1 2016. The start of the year has been negative overall for HPE, reversing the trend of positive growth it saw across the EU in 2015.

The smarthome and office sector continues its march of progress in the UK distribution channel, with a massive YoY revenue growth of nearly 189 per cent, albeit from a small base.

This comes as no surprise as the latest Context Smart Home Consumer Survey saw awareness of the smarthome concept increase over the second half of 2015 in the UK to 59 per cent, compared with 43 per cent in France.

The other star performer for YoY growth in Q1 was smartphones, with 77 per cent, contributing to a 62 per cent YoY increase to the telecoms sector, driven principally by sales to the corporate reseller channel. One interesting success story for the quarter has been the increase in sales of high-end graphics cards in the UK channel throughout 2015 into early 2016 after the announcement of the Oculus Rift recommended system specifications, with very strong growth for sales of GTX 970 cards.

It is clear the UK is gearing up for VR, and we expect to see the first retail HMDs being sold through the channel later in the year.

Last year's major success story, the UK PC market, has seen a reversal of fortunes. The sector fell -7.3 per cent YoY in Q1, compared with +33 per cent at the same time last year (see Fig 1, below).

Looking deeper, we see that Bing notebook unit share was only one per cent in Q1 2016 compared with 23 per cent a year prior. Low-cost Windows with Bing portables were introduced in 2014 to the channel in response to the perceived threat of Google's Chromebook, giving OEMs a large discount on Windows licences.

Then in early 2015, Microsoft restricted use to 14in notebooks or below and increased the cost of software for the rest of the range. Desktop monitors performed well in Q1, with a 10 per cent YoY increase in the UK for units.

This was mainly due to demand for consumer brands such as Asus, Acer and AOC into the retail channel, with the gaming segment driving this growth. Overall, the share of revenue for desktop monitors over the size of 23in has been steadily growing in the last two years, coupled with an increase of sales for 4K and UHD displays.

The imaging sector has continued to be a tough market, with a fall of -14 per cent YoY revenue in the UK, a trend seen in almost all EU countries. Consumer inkjets and laser hardware were the poor performers, in contrast to business inkjets which saw an 18 per cent YoY unit growth.

Enterprise has also had a rough ride across the EU in Q1, and the UK is no exception. Revenue declined -19 per cent YoY, second only to France in this decrease (see Fig 2, below).

Every major vendor suffered in the period, although EMC, IBM, and Juniper Networks bore the brunt of the drop across western Europe.

The only strong performer within Enterprise was SSDs and flash systems, but this success was at the expense of more traditional storage products.

It's not clear whether the relatively strong performance of the UK channel in Q1, in contrast to most of the EU, was dampened by the looming EU referendum, or if this success will suffer in the aftermath of the vote.

As with most of the issues in the Brexit debate, both sides will most likely use this evidence - the good performance of the UK channel in Q1 - to support their own polemic.

Jonathan Wagstaff is country manager UK & IE at CONTEXT