The channel stands corrected: Hardware is a refresh cycle business now
- Reference: 1736339409
- News link: https://www.theregister.co.uk/2025/01/08/channel_stands_corrected/
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This was the message delivered by Steve Brazier, formerly CEO at Canalys until it was bought by Informa, where he is now a Fellow.
"I come on stage with a smile, but you may not be smiling by the end of this presentation," he told an audience of resellers and distributors at the Canalys Channels Forum in Berlin last October.
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"For 30 years or more, the channel has actually been easy to run. You thought you were all business leaders and geniuses for the success you had. But if we boil it down, you sat there, you waited for new hardware products to launch in all sorts of different categories, and you followed that growth as those different categories grew year after year after year.
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"Unfortunately, we're calling a turning point today in that 30 years, which is essentially across the board the hardware industry is no longer growing, whether that's printers or PCs or servers or storage or Wi-Fi or routing or all our major categories."
Most of the major hardware vendors sell via third-party suppliers that then take their PCs, servers, and other tech kit to customers, provide installation, integration, and other services.
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The travails of the channel are reflected by the traditional big brands whose legacy operations faltered. Cisco, for example, has struggled to lift its switching and router business out of the doldrums, reporting [5]declines of 15 percent in its FY 2024.
HPE – which used to transact around 80 percent of its global revenue via distributors and resellers – only grew in its fiscal 2024 due to AI server sales in its Compute division. These [6]sales weren't very profitable , despite taking place outside of the channel, so no middlemen were involved to take a cut.
The channel used to account for $4 in every $5 that HPE generated in sales, but that figure has fallen to 65 percent over the years, due to direct selling of HPC kit in addition to AI servers and more.
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Brazier said emerging technologies including the metaverse, 3D printing, and IoT have failed to become "material businesses," telling the 1,000-strong tech exec audience, "don't get too depressed" as the traditional growth drivers are "not declining" but they aren't growing either.
"Running flat business is OK, but they're all essentially flat, a replacement business. The outlier is cybersecurity," he said, which remains a double-digit growth market as the cyber baddies are relentlessly still causing harm.
The picture is "more bleak" in Europe as "economies are developing more slowly," unlike the US. Why?
"Actually, one of the biggest differences between the US economy and the European economy is the US has more immigration. But politically, it's so hard for politicians to stand up and say, 'If you want more growth, we need more immigration'."
Companies headquartered on Europe's side of the pond, including Computacenter, that have also established operations in the US were able to offset slowing trade in the UK last year.
Others are building ever bigger cloud services businesses: Insight purchased SADA, which has Google Cloud skills; CDW bought AWS partner Mission Cloud; and WWT bought cloud migration specialist Softchoice.
So is the Canalys founder correct?
Simon Ewington, HPE worldwide channel and partner ecosystem leader, told The Register that Brazier is "always" provocative, a point echoed by Steinar Sønsteby, CEO of Atea – one of Europe's largest services-based resellers.
"As a long-time friend of Steve, I can truly recognize his provocative style," Sønsteby told us.
Data collected by Canalys does back up Brazier's points, so his speech wasn't baseless by any means. The bigger resellers and distributors are getting bigger but via acquisition.
Sønsteby continued: "I feel comfortable that the IT industry will keep on growing as digitalization has never been more critical. The channel in Europe will consolidate to fewer and bigger players as the OEMs downsize and need the channel more than ever – but need players that can add value for the OEM and the customers."
Added value is in the eye of the beholder.
[8]Infosec experts divided on AI's potential to assist red teams
[9]Chinese clouds target small and medium enterprises in APAC in search of growth
[10]Broadcom makes U-turn on plan to serve top 2,000 VMware customers itself
[11]Musk and Trump to fall out in 2025, predicts analyst
James Rigby, CEO at SCC, told us he attended the event – as did The Reg – saying: "I think the general feeling was that he [Brazier] was being overly pessimistic. And to be honest, I think the discourse is probably 12 months too late."
Rigby describes the past 12 months as "hard yards for everybody" and tough in terms of "cost pressures" and sliding "demand." He points toward the Windows 11 refresh and AI as beacons of hope and cause for "optimism about demand going forward." Some of our readers may disagree.
Canalys reckons that tech buyers are nervous about uncertain geopolitics, which are constraining budgets. Customers are extending sales cycles, making it harder for the channel to find growth. And following a sustained refresh cycle, fueled by the pandemic, there is a saturation in terms of computers, networking kit, and other areas.
Brazier told The Register today that the challenges faced by the channel are reflected in the market capitalizations of the biggest players (as demonstrated by the graph below).
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"To put this into words, had you invested $100 in the S&P500 on Jan 1 2024 you would have had $126 as of Jan 6. Had you invested $100 in the publicly quoted channel partners over the same period you would have had $82. So, I know the partner CEOs try to sound positive but can you imagine the conversations in their boardrooms this year?"
Brazier's last point at the Channel Forum in Berlin was about the wider tech industry on this side of the pond, and it's perhaps a prescient one. He reckons the industry in Europe has missed the tech boat and every office worker in the region is paying a €100-a-month "tax" to American companies for a right to work.
"And with the arrival of AI, that €100 a month is simply going to go further up."
At this stage in the evolution of GenAI, "virtually nothing of it benefits the channel. The channel has been excluded," he said. And he is entirely correct.
The AI industry is dominated by hyperscalers investing in AI infrastructure, and AI startups which then use their expanding datacenters and so on to run their services. Tech is eating itself. Customer spending on AI is currently a fraction of the amount big tech is lavishing on big bets that the technology will take off.
So if the AI bubble bursts, will the channel care? The knock-on effects will be felt far and wide, just as happened in the dotcom bust. ®
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[3] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offprem/channel&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33Z36vNHKFsntpXb-3spwLAQAAAMg&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
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[5] https://www.theregister.com/2024/08/15/cisco_cuts_workforce/
[6] https://www.theregister.com/2025/01/02/cloud_hardware_research_hpe/
[7] https://pubads.g.doubleclick.net/gampad/jump?co=1&iu=/6978/reg_offprem/channel&sz=300x50%7C300x100%7C300x250%7C300x251%7C300x252%7C300x600%7C300x601&tile=3&c=33Z36vNHKFsntpXb-3spwLAQAAAMg&t=ct%3Dns%26unitnum%3D3%26raptor%3Deagle%26pos%3Dmid%26test%3D0
[8] https://www.theregister.com/2024/12/20/gen_ai_red_teaming/
[9] https://www.theregister.com/2024/12/05/chinese_cloud_vendor_apac_prices/
[10] https://www.theregister.com/2024/12/05/vmware_user_migration_plans/
[11] https://www.theregister.com/2024/12/04/musk_trump_china_agenda/
[12] https://regmedia.co.uk/2025/01/08/channel_market_capitalization2.jpg
[13] https://whitepapers.theregister.com/
Re: Money dear boy
Desktop hardware is amazingly cheap - you can do most things with an RPi400, the problem is that IT doesn't like handing out things that look like toys and people don't like feeling that IT has issued them with a toy. If you insist on giving employees portable computers then the bottom of the line MacBook is also enough for most things.
In several areas where costs have stayed high performance has soared with it - a 4080SUPER card is an absolute compute monster.
The problem is bigger servers, where Intel and AMD's attempt to appeal to the market for huge boxes for data centres means they have no incentive to keep decent 1U servers at the £1000 mark; you're paying more than that for a 1U box with a motherboard in, before sticking in the processors whose pricing starts in the high hundreds and goes to the stratosphere.
Re: Money dear boy
For many of us a bottom of the line MacBook would present visibility problems.
Going slightly, but not very far, OT is there any way that elReg's Post Comment window can have the same font size as the posted comments?
Growth always looks exponential and it never is. Whatever space something is growing into is finite. Whatever resources are needed is finite. In the early stages these are not limiting factors so growth looks exponential but it's really the start of sigmoidal growth which flattens out when those factors do become limiting. Any ecologist can tell you that and I'd hope an economist would as well.
What's more, for a longish lived product that applies to the total number of units sold. Monthly/annual sales are just the first differential of that.
TL:DR You're lucky to have replacement sales.
It's been obvious since the start of the computing industry, that eventually everyone who wanted a computer would have one, and we have definitely reached that point (probably 5-10 years ago tbh).
However, it sounds like most of the CEOs interviewed seem to think that there's still some way the business can go back to it's 1990-2010 heyday, when whole new swathes of markets were opening up, and the pace of technological change was high enough that people were always upgrading.
It's time for 'the channel' to face facts: there's no new markets for computers opening up, and most of the drivers for upgrades, such as 'AI' and Windows 11, are seen by most customers as nothing more than sales tactics that can safely be ignored.
For example
Sønsteby continued: "I feel comfortable that the IT industry will keep on growing as digitalization has never been more critical.
I guess the advantage of a being a CEO is that you can be utterly wrong, and still get paid. Sucks for the rank and file at his company though, they're working for a fantasist.
@phuzz
"It's been obvious since the start of the computing industry, that eventually everyone who wanted a computer would have one, and we have definitely reached that point (probably 5-10 years ago tbh)."
Plenty of low income families would still like one (or more) but cannot afford them in the UK - as many schools discovered the hard way during lockdown when they found lots of kids did not have suitable kit for online work.
But, in reasonably well off countries, demand probably met for the more affluent sectors of society.
MS are trying their best to force unwanted hardware refresh cycle with the W11 debacle though.
... Plus there would be all sorts of demand in less wealthy countries where a computer is still aspirational for a large chunk of the population.
As Tom says above, an RPi400 or the like would be suitable for most situations an might well fit the lower income home family budget but PC box-shifters* aren't going to demean themselves. It wouldn't give them the margins. It will probably take them (and Microsoft) a good while to realise that their market is now saturated.
* Yes, I know they like to dignify themselves as The Channel nowadays but that what they always were.
Regarding Sønsteby's seemingly irrational exuberance : Mandy Rice-Davies applies [0]. I doubt he's really that far into denial. But under what circumstances would a CEO frankly admit that they're in a declining business? You lie, say things are going wonderfully, and (if you're a good guy [1]) try to figure out how to get the company of the hole into which it's plunging, or (if not) try to get as much for yourself as possible while looking around for your next job.
[0] Yank here, but one does pick up on various useful UK-isms in these fine fora...
[1] I realize the epidemic cynicism hereabouts would deny any such possibility, and it does seem unlikely for such a CEO to exist. I'm just covering all bases here.
'Beacons of hope'
Funnily enough their new beacons of hope look just like the things that they give as stuff that previously failed to become 'material businesses'.
They convince themselves that the lastest new thing will become massive where the reality is that it's probably useful enough to survive, but not at the scale they think it will, and a lot of the demand will remain at the hobby/toy level.
There'll be people who make decent ongoing income in those areas especially from those who find a genuine use case but the hype will never be fulfilled.
As with most bubbles the secret is to sell into the initial rush without fooling yourself it's all real and investing into supporting future illusionary growth. Sell the shovels, but don't commit to a new dedicated shovel factory arriving in 5 years...
Pardon my ignorance. . .
. . . but what, pray tell, is The Channel ?
It seems to be a bit of jargon which has passed me by.
Re: Pardon my ignorance. . .
It's a lot of water between England & France.
Re: Pardon my ignorance. . .
Thanks. You brightened my morning. You didn't provide any enlightenment but at least you made me laugh.
Re: Pardon my ignorance. . .
Ah..La Manche
Money dear boy
Hardware in the seventies was really expensive. In the eighties it became cheaper and the nineties had a price war starting around 1995/1996 that's how a lot of families got their first computer.
But today hardware is freaking expensive and there is not a huge improvement from a computer from a decade ago from one released today save for the fact the computer from a decade ago may not he able to run Windows 11.
So there is not much motivation to replace hardware yearly like there was at a time when a computer today was way much faster that a computer a released mere one or two years ago.