Channel News
CJ Fairfield
‘We had a huge uptick in spending during COVID, and it wasn’t expected. There’s got to be a market correction,’ says one solution provider executive.
A possible economic downturn and a rise in inflation are expected to result in a two-percent revenue decline for U.S. B2B technology sales through the reseller channel in 2023, according to research firm The NPD Group.
Overall budgets in 2023 are expected to be under pressure but IT investment is expected to remain the same or even increase as technology continues to be viewed as a critical necessity to maximize productivity, said Mike Crosby, executive director and B2B technology industry analyst for NPD.
“The [federal government] is driving to reduce inflation,” Crosby told CRN. “They‘re raising interest rates, so it’s naturally starting to cool the economy down. And with that, they‘re trying to manage that balance so it doesn’t put us in a recession.”
He added that the expectation is that 2023 is going to be “the year that’s the biggest challenge. And it looks like, based on our forecasting algorithm, it’s going to be a little bit front-half loaded.”
Michael Goldstein, CEO of LAN Infotech, a Fort Lauderdale, Fla.-based MSP, said although there may be cutbacks, he doesn’t foresee cutbacks in security.
“In the industry we’re physically in right now, people need to keep their systems running and keep staying afloat,” he told CRN. “I do see people being a little more cost conscious, but people gotta keep the tech lights on.”
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Phillip Walker, CEO of Manhattan Beach, Calif.-based MSP Network Solutions Provider, said he is already starting to see the downturn.
“We had a huge uptick in spending during COVID, and it wasn’t expected,” Walker said. “There’s got to be a market correction.”
He said with companies implementing layoffs and “the way the market is going to go,” it’ll take six to eight months to get to a place where customers are spending again.
But if inflation comes down, as Crosby is expecting in 2024, interest rates will also likely decrease which will stimulate business investment.
“I think in 2024 it’ll be on a nice positive trajectory,” he said. “It’s not going to be straight up but you‘ll start to see the improvement early in 2024 modestly. I actually think you’re going to carry over late 2023 slightly positive as well.
“When you get to 2025 you‘re going to see nice growth numbers because you’ve got all of this convergence,” he added. “Supply chain has really been optimized now through onshoring, and through redundancy, and all different types of integrated strategies are much healthier. You’ve got inflation where it should be at these more natural managed lows and you’ve got business investment accelerating. You‘re going to have an economy that’s really robust and operating at full capacity. You’re likely to see even a more aggressive ramp on the growth.”
Aging devices deployed during the pandemic will also be up for refresh, he added.
“In 2023 there’s a little bit of some choppiness, but the hope is it’s not going to last very long,” he said. “The other nice thing is when you see the expansion, which is post-recession, that lasts 56, 57 months. Now we’re at five years of growth and expansion and, barring any major issue worldwide, we’re positioned very well because you‘ve got a healthy economy, low inflation, you’ve got timing around these tech refreshes and you’ve got real significant investment going on.”
Another aspect likely to happen in 2023 is a “mix shift” of hardware, software and cloud.
“IT hardware drives the vast majority of the revenue (about 60 percent), but you‘re likely to see a little bit of a decline on the IT hardware side and a little bit of the mix shift over to software and cloud,” he said.
Walker said he expects that resellers are not going to be buying servers as much because they’re moving to virtual and having higher collaboration and deeper cybersecurity.
Reseller channel sales ended 2022 with strong unit and revenue gain, up 22 percent and 10 percent, respectively. Despite expected revenue declines in 2023, Crosby said unit sales will continue to grow year over year throughout the forecast period, ending in 2025, and revenue for the industry will return to growth with an expect six percent increase in 2024 and a seven percent increase in 2025.
There may also be an expansion of IT services as companies may go on hiring freezes due to a possible recession, which means doing more with less people, “and that also puts pressure on technology.”
“There‘s a perspective change within B2B that started seeing IT spend less about a cost and more about an investment,” Crosby said. “[Businesses] started to really recognize the power of productivity around technology, and especially with fewer people.”
