Channel Growth Outlook Strong, Says 2112 Group

Lorna GareyWhile Gartner recently forecast a 5.5 percent drop in IT spending worldwide for 2015, with services spend projected to decline 4.3 percent, U.S. channel companies are beating the numbers. That’s according to a report out Tuesday from The 2112 Group that forecasts “at least” 6 percent growth in the North America IT channel for 2015.

Thank a strong U.S. dollar and vendors encouraging enterprises to seek help navigating the complexities of moving to cloud and building a digital business.

“IT activity is stronger than the growth in spending indicates,” said Gartner research VP John-David Lovelock. “Price declines in major markets like communications and IT services, and switching to ‘as a service’ delivery, mask the increase in activity.” Enterprise software is expected to see the smallest decline of 1.2 percent, from $314 billion in 2014 to $310 billion this year, according to Gartner.

The 2112 Group’s 2015 Midyear Channel Report, available now, shows solution providers bucking the trend by expanding sales, revenue and profitability at rates ahead of their 2014 pace and greater than their OEM/vendor partners. As many managed services operate on a recurring revenue model, their revenue and profitability are accretive, bolstering growth far above the market average, said the group in a statement.

“The global IT industry is forecast to contract in 2015 as spending slows, cloud services displace legacy infrastructure and current fluctuations impact budgets,” said Lawrence M. Walsh, CEO and chief analyst of The 2112 Group. “The IT channel – resellers and managed service providers – are increasing their revenue, though, through recurring-revenue services that build up over time. The result is growth even when the rest of the industry is facing a stall.”

Vince Bradley, CEO of master agent WTG, told Channel Partners that he agrees with Walsh’s assessment.

“We are seeing not only an increase in network size and MRC, we are also seeing …

… more international networks as well,” says Bradley, in spite of the strong dollar. Another growth area for WTG is IT resellers adding connectivity to their products and services, a trend that should increase as workloads move to the cloud.

Some report highlights:

  • Nearly one-half of solution providers say average deal values are increasing compared with 2014.
  • Two-thirds of solution providers say their first-half sales pace is ahead of the same period in 2014.
  • Seven out of 10 solution providers expect 2015 profits to increase at least 6 percent over 2014.
  • Three-quarters of solution providers expect full-year 2015 sales to increase at least 6 percent; with one in four solution providers forecasting sales growth to increase at least 15 percent. 

But the report also suggests solution providers should be taking steps now to maintain that momentum. Among the challenges are upping the marketing effort to find new customers and recruiting – and affording – qualified technical talent.

The skills gap is acute, and growing. The 2015 (ISC)² Global Information Security Workforce Study, in which Frost & Sullivan and Booz Allen Hamilton surveyed nearly 14,000 respondents, showed the shortfall of security professionals alone will reach around 1.5 million by 2020. Small and midsize companies are unlikely to be able to compete for in-house talent, and that could spell an advantage for channel providers who are able to assemble teams.

“While vendors are struggling to make the transition to cloud services and recurring revenue models, solution providers are capitalizing on their services to off-set declining product sales and margins,” Walsh said. “For solution providers, the 2015 Midyear Channel Performance Report is validation that their services investments are paying off. For vendors, the report is a calling card to devise ways of tapping into partner services and support changing channel economic dynamics.”

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