Channel research firm Global Touch has painted a bleak picture of the networking industry in its latest Channel Tracker survey, prompting the industry to warn that more resellers may fall victim to the economic downturn.
The report is put together from the predictions of channel players in Europe and the US with combined revenues of more than $95bn. These include resellers, distributors and systems integrators.
Military action in Iraq, and a second US recession, are cited as reasons for a possible delay in recovery in IT spending which could create "disastrous market conditions", according to the findings.
The report, which covers the networking equipment channel, said: "Our best prediction is that the market should begin to recover in the second half of 2003, assuming no war or a double-dip US recession."
But, if the worst happens, Global Touch warned that the recovery could be pushed back well into 2004.
Manny Pinon, sales and marketing director at distributor Norwood Adam, said that the economy had been damaged this year by controversy on Wall Street, the 11 September attacks and the economic downturn in the US.
"This has hit technology hard if you look at the stocks," he explained. "If you add in another factor, such as war or another US downturn, it will have a significant impact."
Pinon added that confidence is low and insurers are reluctant to support deals for distributors, which are instead forced to guarantee deals themselves. "The underwriters are seeing a lot of resellers as a bad debt," he said.
Networking vendors also face a difficult fourth quarter in Europe, with the overriding feeling among resellers that sales will be down on last year.
In Europe 71 per cent of resellers expect sales for the third quarter 2002 to be below expectations, compared to 39 per cent in the previous quarter.
Looking ahead to the next quarter, 68 per cent of European resellers predict sales to drop further.
But there is hope for those that continue to focus on the right areas, according to Pinon, who suggested that some resellers will emerge from the slowdown in a stronger position.
"Resellers have to deliver a lot more value to meet customer demands today," he explained. "The benefit to all the industry is that, when you have times like this, it gets rid of the weak."
Nick Watson, head of UK unified channels at Cisco, believes that resellers which fail to invest in training will struggle, but that others will benefit from differentiation.
"There are a number of resellers that will see this as an opportunity to differentiate themselves and break away," he said.
"One thing that comes out of any downturn is the link between technology and productivity. Sales capability becomes critical and resellers that can sell the productivity benefits will be successful."
Phil Kenerdal, senior sales consultant at reseller Abtec, confirmed that sales have remained flat over the past year. He warned that resellers need to become more flexible, and would need to react faster to market changes to prosper.
"We leave ourselves flexible to introduce new products when demand increases," he said. "We got into data storage about six months ago because this is a growing market."
Bit it is not just resellers that will suffer. The major vendors continue to have a torrid time in Europe.
Channel sales at 3Com, Cisco and Enterasys were flat to weak for the third quarter 2002, compared to the previous quarter. Juniper Networks recorded flat growth, and sales at Extreme Networks were weak to very weak.
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