It's boom or possibly bust

Some classes of disk drive are in short supply already because OEM demand has been so high in the run-up to Christmas. Are vendors once again hoping for a seasonal boom? They may well be, but will it happen? It hasn't in the past two years, so why should it in 1998?

There are plenty of reasons why it should not. Retail sales figures for October 1998 were down on last year's in the UK; there is widespread talk of a slowdown in growth for 1999; the ripples from the Asian economic crisis are still being felt and we have the year 2000 approaching. Users remain uncertain about the thin client concept and Intel is driving forward with a release programme that is quickening lifecycles every few months.

Microsoft is under scrutiny in the courtroom and Compaq and Dell continue to tear each other apart on pricing.

All these events are stimulating events but are also spelling fear uncertainty and doubt. PC sales are forecast to grow by about 14 per cent next year in Europe, a little less worldwide, but will they be able to grow that fast? And if they do, what price will the consumer be prepared to pay?

What happens if Wall Street crashes again and demand takes a dive?

This year, the Christmas boom - or lack of it - will set the tone for the whole year. Poor sales may create a surplus of product in the channel once again and lead to continued poor financial performance by many leading vendors. If demand remains weak, the industry may even suffer negative growth next year.

Overall income for the IT hardware industry is not going to increase significantly over the next 12 months. More than ever, it is time to get out of hardware and switch the emphasis to services. But it also means a change in attitude to the market and the way it all works.

Product is so inexpensive now that what resellers need to be paid for is not the product itself, but the cost of handling that product, of knowing about it and making it available to the customer. It doesn't matter where the product comes from anymore - why shouldn't it come directly from the vendor?

We have had it all wrong in the channel for the past decade. We have been supplying simple products - PCs - through indirect channels adding cost to the sale and supplying complex products - AS/400s, VAXs and Risc-based machines - direct.

But the simple products should have the simplest, most cost-effective and direct route to market, while the complex kit should be sold through independent specialists with real knowledge and expertise.

Over the next 12 months we will see a much more direct approach by the vendors. They simply can't afford the channel anymore - not unless it adds something. All the volume growth for the PC vendors is going to be in the consumer and SME market - the business PC will become a specialist product. It then might be possible to specialise in selling those PCs, instead of being a jack of all trades and master of none.

Simon Meredith is a freelance IT journalist.