Distribution faces hard times in 1999

Distributors expect 1999 to be a tough year and are already feeling the pinch of a softer market as vendors and users look to reduce costs.

In a straw poll conducted by PC Dealer, distributors admitted that margins have been subjected to increasing pressure during the first quarter of the year.

Graeme Watt, UK managing director of Computer 2000, said: 'The market is struggling overall. We were growing through mid-1998, but the market went soft from October onwards. Although we have seen revenue growth in excess of 25 per cent year on year so far in 1999, we saw substantial pressure on margins during February.'

He attributed the pressures to changes in Ts&Cs from leading vendors and urged them to 'move to take the cost out of the channel instead of putting cost into it'.

'When you get pressure across the board like this you have to find ways of shoring it up, but you also have to look at the way your organisation is being run and ask whether it is competitive. You've got to look at your cost base and take measures if necessary,' Watt added.

James Wickes, chief executive of Inter X, Ideal Hardware's holding company, said it had concentrated on growing the higher-end market, particularly in the storage sector. This strategy had 'shielded us over the past few months', he claimed.

But Wickes added that signs of increased competition had surfaced in the past few weeks, particularly in the PC business.

Peter Rigby, director of marketing and communications at CHS Electronics, said: 'This is a tough market and a tough year for everyone, as organisations hold off their buying decisions due to year 2000. It's only nine months away and I think most vendors are still having compliance problems. The market is slowing down already and we'll adopt a wait and see approach for the year.'

PC SALES SET TO START YEAR ON HIGH

IDC is predicting strong growth for the first quarter of 1999, with unit volumes expected to grow 14.3 per cent year on year, driven by a consumer boom.

For the full year, the market research firm forecasts growth of 14.3 per cent, indicating that a general slump is not in the offing, despite slowing growth from Dell for its 1998 fiscal fourth quarter and warnings from Compaq that sales for this quarter are likely to be below expectations.

The PC market is being driven by strong sales into consumer markets in the US, Western Europe and Asia/Pacific. The latter PC market as a whole is expected to see increased sales of 14 per cent in the first quarter, while Japan will see unit growth of six per cent.

Key drivers in Western Europe include continued momentum for consumer goods, fuelled by post Christmas interest in low-cost PCs, the portable PC market and strengthening of the German economy.

But the continuing downward trend in PC pricing will affect vendors' revenue growth and the global PC market is tipped to grow at 4.8 per cent to $178.4 billion.