IT Distributors Hope Sales Have Hit Bottom in U.S.

Published: June 15, 2009

by Timothy Prickett Morgan

The IT sales channel, through which the majority of server, storage, and software products actually travel from factories to end user customers, is hoping that the worst of the economic meltdown is over.

Just prior to a meeting of members held last week in London and just after a meeting held in New York in mid-May, the Global Technology Distribution Council, called the bottom of the market, at least in the United States. The GTDC is an industry association representing some of the biggest names in IT distribution--Arrow Electronics, Avnet, Bell Micro, Ingram Micro, Magirus, Synnex, Tech Data, and others--with combined global sales of over $100 billion.

"The recession that has hurt industries across the world is still a challenging reality," explained Tim Curran, the GTDC's chief executive officer, in a statement. "But it appears that the downturn has leveled off in the U.S. market for IT distributors. "Our members are encouraged and look forward to driving growth again as market conditions further improve."

That assessment is based on a little thing called Distributor Track, as sales tracking service that GTDC members have participated in since 2002 and which breaks down and then aggregates their sales by product, industry segment, and reseller channel as well as tracking pricing trends. With the economy in the pits and big projects on hold, netbooks, wireless products, and network-attached storage are the big winners, particularly since small and medium businesses are still spending some money and are buying such products.

The GTDC added that during the last IT recession, which started in 2001 and lasted probably through late 2003 to early 2004 in my estimating, IT hardware and software makers wanted to pull back from the channel and push products more directly in the hopes of maintaining margins. But this time around, says the GTDC, pushing through a broad and diverse set of channels seems to be the way to go, and this is one of the reasons why the IT sector apparently has one of the highest productivity and efficiency levels compared to the wholesale distribution setups in other industries. (I have no way of quantifying that statement, and GTDC didn't do it either.)

Speaking last week in London, as this report at The Register covered, the luminaries from the big distributors said that this was a much worse IT recession than the one early in the decade in terms of its magnitude, breadth, and depth, and that some parts of the IT channel would grow next year while other parts might not see growth until 2012. Of course, getting any growth at all compared to 2009 won't be all that hard. Getting real growth in 2011 is the real challenge for all IT players, as is keeping the costs as low as possible as revenues will undoubtedly continue to slide this year.

Perhaps more disturbingly, the distributors said in a follow-on report that they are worried that a large number of their resellers would go bust this year, something on the order of 15 percent, which is as bad as the recession of the early 1990s was on the reseller community.

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