2025 Channel Sales Outlook Looks Strong, Pending Tariff Decisions: Circana

Hardware sales are expected to grow as businesses refresh their fleets of PCs, while other economic factors look promising as a base for strong channel sales growth in 2025, said Circana’s Mike Crosby. One wildcard is the impact of possible tariffs from the incoming presidential administration.

[What follows is a transcript of the above video]

Jennifer Follett, vice president of U.S. content and executive editor, CRN: This is Jennifer Follett with CRN, and I'm here with Mike Crosby of Circana. Mike, thanks for joining me today.

Mike Crosby, executive director, Circana: Thanks for having me, Jen, great to see you.

Follett: You too. We are approaching 2025. It's right in front of us, and I think a lot of partners, solution providers, are interested in hearing about what they should be expecting for buying trends in 2025 and who better to go to than you? So give us a little overview of what you're expecting to see. You've got some recent research that we're going to talk about, right?

Crosby: We do, yeah. We have some things and some updated data to share that I think will help tell the story a little bit. But I think if you start kind of high level and then we can get a little bit, we'll start macro and get a little micro.

I think as we've been talking about literally for like the last, you know, 15 to 18 months, the economy was a little bit overheated. We saw inflation being a problem. We saw the Federal Reserve put in some pretty aggressive interest rate hikes that were intended really to cool the economy. We've seen a lot of success in that now. So we're finding now that we're nearing what I'm calling kind of final approach for the 2 percent Fed target, and that's really helping set the table nicely for where we're heading in 2025.

So if you look at inflation now, just you know, 2.4 [percent], 2.5 [percent], you've got unemployment running between 4 and 4.1 GDP. The engine continues to run. We're still like 2.7 to 2.9. So all the fundamentals really seem to be coming together nicely. The Fed continues to make interest rate cuts on that.

It's certainly going to be appealing for business for the B2B side of the equation as we start to see cost of capital come down, and that should help try and drive and stimulate additional spend.

We're also up against, as we've been talking over the last year or so, the significant amount of devices in these PC fleets for midsize and enterprise that really are up to the edge of really where they need to be refreshed, and that's right up against also the [Microsoft] Windows 10 sunsetting.

So there's real intent and real motivation, especially the larger the business is, to really get those products refreshed and installed and active to ensure that there's no disruption to the business as we get going.

So again, macro-wise, all the economic elements are coming together nicely, and as the interest rates come down, I think it really sets the table for some nice movement as we lean into 2025.

Follett: The last time we spoke, we didn't know who the president was going to be in 2025. Now we do know it's going to be Donald Trump. What are the implications of that, do you feel like, for the spending environment, inflation, all these macroeconomic indicators that we're talking about?

Crosby: It is certainly helpful to know, but also there's still a lot of unknowns there and there's still a lot of uncertainty based on the most recent information that I've been able to see and review. It's a little double-edged.

Like if you look at it, you think with again with this administration coming in, there's likely going to be less regulation, which is likely going to stimulate more business growth and expansion. You're going to see more M&A activity. You're going to see a lot of those pro-business kind of acts, you know, actions and activities begin to accelerate. That's coming also nicely.

We're getting in good shape with the economy, and if the rates continue to come down, again, it's going to be very pro-business.

The other side of the equation is with some of the blustering around tariffs. Tariffs are second, I believe a significant challenge depending on how they're deployed that it could be pretty, pretty challenging for the economy.

We're really in great shape, like we said, and we're just starting to see that momentum begin to build. But some of those are fairly punitive and pretty aggressive, and if we do that, what's likely to occur is we're going to get reciprocal kind of response by a lot of these countries, but also you're going to see OEMs really try and chase a more efficient supply chain.

So what could put at risk is a little bit of disruption in supply chain, maybe not like we had with the pandemic or post-pandemic, but still you're going to be moving to different countries, providing through different suppliers. There's a lot of change that can be going on there. And all of this is going on right now without anything formally being put in place. So all you have to do is talk about it and you've already got contingency planning that's already rolling, and you've got a lot of OEMs saying, ‘OK, we've moved a lot to Mexico. Now Mexico might be a problem. So now where do we want to look at it?’ And so you've got some of that, that's a little bit of the uncertainty. It's a little bit of disruption that I think could be challenging.

And again, depending on is it a negotiation tactic, if we take it as reality, those are very aggressive numbers, and again, I think that could cause potentially certainly some fallout and could cool and slow down what we believe is really setting the table nicely for a nice aggressive run that we're coming up on.

Follett: And with the CHIPS Act, you know, there's been a push to develop more of that supply chain process, build our own processors, here in the United States. One of the big proponents of that was Pat Gelsinger, [former CEO] at Intel, who now we know is no longer in that role. Does this call into question the efficacy of that process? Is there still going to be a push to build these chips in the United States or is that now kind of been given the axe as not a great plan?

Crosby: No, it's a great question because I think as we look at it strategically, it absolutely is in the U.S.’s best interest to bring capacity and capability of manufacturing here. And again, most of these fabs that are being built now, it's the highest end of the semiconductor equation. So it's not low-level chips, it's really high end.

And I think that's really good not only for us from a U.S. standpoint, but from a global standpoint as well as bringing a lot of that capability and capacity here.

What's interesting is there's even been some discussions with the new administration—and ultimately it might be the majority party in Congress—that there's still about $9 billion that still needs to be deployed on the CHIPS Act, and there's discussions on could there even be possibly some rescinding of some of that funding and redeploy that funding towards other directions, so I think it's a little bit early. I think it's a lot of speculation, but I think to your point, yes, it's good for the U.S., even with Gelsinger out at Intel, I still believe that there's, again, nice opportunities certainly for in-country capacity, and we're going to continue to see growth and expansion there. That ultimately is going to be a good thing for us. I think not all, both, of them are online yet, but they're coming online pretty quickly, and that I know there's been some discussions too relative to what Intel's formal plans are and ultimately where that goes. Do they keep the Foundry business? Do they not? I think there's just a lot of unknowns, right? But I think in general, to wrap it up with you, I think it's going to be good for the country, and I believe there's commitment there that we're going to see the benefits of that here in the future.

Follett: So let's look a little more at 2025. Coming into it, we're still, I think, seeing some pressure. We're still seeing some layoffs at some of the big tech players, things are not yet comfortable, I would say. What are we thinking for early 2025?

Crosby: Yeah, it's that it's a little bit challenging because again, you look at the macro numbers and they look pretty good, but then you still see kind of these, these ripples of within specific segments that are still either reductions in force or they're not doing any what you would anticipate.

So I think you're still going to see once this all stabilizes relative to the new administration, I think you're going to then really get a good feeling where it is.

We may see it a little bit of a slower ramp in the maybe first quarter or so as we just kind of get our bearings and where everything is, but ultimately, I think we're going to see it is we're going to start to see some growth. We have to, quite honestly, because we've got, like as we said earlier, a big catalyst is this PC refresh, and we saw some of it. But again, there's still a significant portion of the install base, it's over 60 percent to 70 percent that's still operating Windows 10 or older. And while Microsoft is still offering some security patches and a means to bridge, if you don't make that, it's going to be expensive, and I think ultimately, companies don't want to see themselves in that kind of vulnerable position.

So I do think overall in 2025, again, we're anticipating growth. It's also comping over a relatively low number, so keep that in mind as you see the 6 percent kind of an aggregate gain. But I do think that again, you've got a lot of things that are lining up nicely as we talked about economically, talked about the refresh and certainly pro-business that we believe that's going to be the case.

So barring any major disruption and again, our forecast that we're talking about today as one of the inputs we did not use in there what's been suggested as tariffs because it's speculative and it's not something that we're [using,] so until that changes, we're really operating within what we have in front of us today.

But yeah, the expectation is again, we're going to be looking good. Look for a little bit of modest ramp in the first [quarter] until we get stabilized as we've said, but then you're going to look for some additional expansion.

Hardware is one of the bigger ones, IT hardware, that I think you're going to see the growth on. We're still challenged on storage and a couple of other areas, but again, we're doing very well on the PC side. Notebooks, desktops both doing well, and you're also going to continue to see monitors still benefit a little bit. Tablets are doing well. So we're starting to see this recovery on the technology from a hardware perspective.

And then software has continued to operate at that 6 to 8 point gain, and then cloud is still operating about a 30 percent gain, so I think all of those are aligning very nicely, again, to shape up to a strong 2025 and barring, again, anything that the major outcomes, I think we're in good shape.

Follett: We've talked a lot about the AI PC rollout and how that's going to play out in 2024 and now it's 2025. Is there a way to quantify, of the people, of the businesses that are going to be upgrading their PCs, what percentage of those are going to go to an AI PC?

Crosby: And we have at Circana, we have prepared a strategy with regard to the hardware. We have the ability to look at it by classification. So if you go to the lowest, lowest configuration is what we would call or consider AI-accessible. It would be anything without an NPU or it might be Chrome based where it's 100 percent cloud. You're not going to have any processing locally on the device.

The next tier of that we have something called AI basic and that would have an NPU, but still relatively low level of TOPS score, which was one of the metrics that we're managing. A step up from that, that is called AI-equipped and above that then again is called AI advanced.
So in looking at the segmentation and what we've already mapped out, we still see a significant majority is at that AI-accessible or AI basic that's still operating in that 60 percent to 70 percent range.

We saw a little bit of increase on AI PC, for the most part, I think it was still very, very early and a lot of it is, you know, it's relatively been modest adoption. There was a lot of testing, there was a lot of interest too in getting additional technologies on the market so they could evaluate it.

And I think you're also finding now with corporate accounts, midsize and enterprise mostly, that I think they're evaluating what the real requirement is from an AI perspective and does everybody need that level of capability and more so, do we need to start looking at how do we tier the capability that ultimately aligns to maybe what your role is within the organization? So maybe if we're an individual contributor that doesn't have a big need to utilize all this AI horsepower, is there a step-down device that still makes sense and it still makes sense economically for the business?

So I think you're getting businesses that are starting to look at it that way and try and understand, OK, not everybody needs the highest powered device. So how do we tier it? How do we stage it? And most importantly, I think back to what we've all been talking about is the critical thing for the adoption of AI PC to accelerate is really the use cases. And do we really have those really clear and really buttoned down? And I think there's still some questions being asked. And quite honestly, it's still early, it's still new.

So AI is not going away. I think AI, taking away the hype and all the other efforts that were going on last year, we have seen some adoption, but it's been slower, and I think it's more planful as organizations are just really trying to understand what is the best use case and what's the best technology that I need to really manage for business.

That being said, there's still this critical need for devices. So to your original question, out of the mix even on this refresh, how much are likely to be AI PCs? We've got a forecast separate than that that lays out what our belief is, what our algorithm suggests will be the mix, but it's still going to be very modest. On the AI adoption though we'll see an acceleration on adoption in 2025 and in 2026.

We still believe that the ramp still on this refresh is going to be ’25 a big part of the year because the refresh are the sunsetting of Windows 10, but also you're going to continue to see momentum in 26 and then start to normalize. So we think it's still going to run a little bit beyond 2025.

Follett: So when you look at AI PCs as a category and the impact you think it's going to have on channel business, would you say AI PCs are overhyped, under-hyped or appropriately hyped right now?

Crosby: Yeah. I would say the promise at the beginning of this I think was huge and there was so much buzz and it was so much driven on the technology, and I think the technology is absolutely great and there's phenomenal results that we're seeing. But what was chasing that technology upfront was the use case and it was, I think that's where the use case has fallen thin.
So I would say it's been a little bit hyped on from the standpoint of understand it has this capability, but ultimately how do I use it to best optimize my business?

How do I make it to save cost, make us more efficient, drive incremental profit, whatever those reasons are. Do I really have a clear understanding of that and what is that use case? That's where I think we're thin.

The overall technology and the horsepower that's built into it. I think it's right on. I think it's, it's been very much, you know, communicated as far as what the capability is.

So I think there's a little bit of a misalignment there between use case and ultimately the hardware and the capability.

Follett: Related to the Windows 10 sunset, we're less than a year away—that's scheduled for October of 2025. Where we are now as far as how many have upgraded and how many still need to upgrade, are we where you would expect us to be or are you surprised at how many haven't moved yet?

Crosby: I would say we're a little bit behind. I would say we're a little bit behind and I think that's where we're anticipating, so regardless of some of the challenges that may be out there are the uncertainty, I think you've got especially midsize and enterprise businesses have to go because the larger the size of the organization, a little bit longer runway is needed to ensure that we don't have any disruption or it's not going to hurt the business at all in the process. So I think you're going to see that go on.

This is where the discussions also go back to what we had talked about earlier on potential risk and impact of tariffs. So that there is disruption and is there challenge then on availability of devices? Could that ultimately lead to some challenges downstream on deployment because we know we're going to be up against it and all of a sudden they're going to say I need everything now and is it all going to be available.

So these are all the variables that I think all the OEMs are watching very closely, all the reseller and VAR partners are watching closely. They're looking at it really just to try and understand that timing and get some reassurance.

There's also been some other safeties that have been going on. We've seen inventory pulled forward, so you're seeing where partners are saying, ‘Look, I'm going to take additional safety and I'm going to buff up my supply a little bit just to hedge a little bit in the event there's higher costs or disruption of supply or anything else, I at least feel comfortable that I have the capability to be able to support my biggest customers and it doesn't throw their deployment schedules and things off.’

So there's a lot of that hedging that's kind of going on, you know, behind the scenes just to try and protect yourself a little bit.

Follett: So we're saying, if you're doing everything you're supposed to be doing, then you should be have all your systems upgraded by the fourth quarter of 2025, fourth calendar quarter. And we've already said we feel like maybe the first quarter is going to be a little slow as people wait and see how things shake out with the new administration. So then are we saying then is it going to be second quarter when most people start to make these moves? Third quarter? How long are we going to wait, do you think?

Crosby: No, I think that's where it is. I even think again, back to the first quarter, I still think once that gets solidified, you're going to see people, they've already got multiple contingency plans that are already baked. So once I think they have at least directionally some idea on where they are, I think you're going to see that begin to accelerate even later in the first quarter, and certainly in second, third quarter, I think you're going to see that growth really materialize because I think they're just out of time. I think you're going to have to move on that quickly, and again, that's what's all the planning going on, because as you go upstream, we have to make sure there's enough raw materials to build the finish good to ship the finish good to ultimately have the finish good available, so there's lead times and all of that.

And that's what's all being talked about now on those top-tier accounts, and ultimately what their deployment plans are and we have to be sure that we can meet the requirement there.

So, yeah, I listen, I think again in 2025, we've got growth planned. And I think my point on Q1 is really about, I think, just I think getting some confirmation I think will give a lot of organizations confidence to say, OK, let's go with plan A; OK, let's go with Plan B, and then I think you're going to see that go into execution phase pretty quickly.
Keep in mind too, one other thing I would probably suggest too, Jen, is that when you look at tariffs, what's interesting is there's usually about four phases of a tariff deployment. And the first one is just simply communicating. Now we know when you communicate what happens in the market, people begin to react and nothing's happened yet. It's just saying, you know, ‘We might do this, we might do that,’ but ultimately as you get down to those phases, the general lead time from initial communication to actual implementation and enforcement is four months on the fastest, 8 months maybe on average, so between four and eight months. So keep in mind that's going to put us pretty deep into 2025 by that time. So we may be OK. We may be able to dodge a lot of that and, again, we'll know much clearer once we get into Q1, I think, ultimately which way the wind is blowing relative to some of these things.

Follett: We've been talking a lot about the client side, but what about the data center side where a lot of the impact of AI is also being felt, you know, servers and networking and power and cooling, What are we seeing there for growth on the data center side?

Crosby: Data center still, again, looks very robust, looks solid. I think there's still more demand than supply. We still see capacity is, is something that a lot of builds are driving, and there's also some other interesting things around now, maybe new and innovative ways to drive both power and cooling.

So beyond the new technologies on cooling, there's a lot of discussions now potentially on nuclear, on mini, on mini nuclear facilities and sites that, again, because they're really looking for these significant data centers to be able to be fairly self-sustaining and they had the ability to generate their own power and they have the ability to manage their cooling needs and requirements without really impacting any other local cities, towns, infrastructure, etc.

And so there's, there's a lot of effort, while there may be relatively inexpensive dirt and construction costs, etc., to build what they need, it is really more about the sustainability, the sustainability part of this equation. That's really I think one that they're going to watch seeing a lot more of the micro data centers now begin to pop up rather than more of the larger scaling. They're easier to get approved from cities and states. I think they can do different opportunities and not just like edge, but even smaller capacity where I've gotten multiples of that, I can ultimately tap into that a little bit.

So definitely see up and to the right on the growth trajectory on data center, continued demand more demand than supply and we're going to continue to see that really show up nicely on a good growth trajectory ongoing, so it looks very good.

Follett: We know sustainability has been a bigger issue in EMEA than it has in the United States, but it's been gaining, gaining strength here in the U.S. But right now as that's happening is when AI is coming in, which is not a very sustainable and power-friendly technology. What should solution partners be talking to customers about where they're trying to balance the desire to be more sustainable with the desire to push out more AI, which is very energy-intensive?

Crosby: I think where you're going is it's going to be a balance, exactly what you're saying. And I think they're going to have to know and understand both sides of the equation, because I think where they may have some expertise and capability around sustainability in ways that they might be able to find efficiencies out of some of these, I think there's certainly an opportunity there. And that's not going to go away. That's just going to continue to accelerate.

The other thing is, again, to your point, is overall capacity, and it's the balance of those two things. And I think that's what it's going to be. I think you're not going to have the perfect sustainability strategy and capability yet. But as long as you're showing forward progress without compromising on the capacity side and the capability side, I think that's going to be the trick. But I think where they can represent both sides of that equation and find efficiency along with scalability, I think those are really, really attractive things to talk about right now and significantly profitable.

I think there's a real opportunity there.

Follett: I'm just looking at your overall numbers, and keep me honest here: You're looking for, I think you mentioned overall 6 percent growth, IT hardware at 3.5 percent, software and services at a little over 6.5 percent, cloud at 31 percent. What are the risks that might knock those numbers off?

Crosby: I think back to our conversation earlier. I think that the biggest thing that I see on some of these is just a lot of this uncertainty. I think the big part of this is, I think, tariffs. It's depending on how they're either managed and orchestrated. A big impact is certainly what's already happened with USMCA [U.S.-Mexico-Canada Agreement], which is the follow to NAFTA [Northa American Free Trade Agreement], that was a zero-tariff environment where again you saw a lot of manufacturers optimize their supply chains and move capacity and capability to Mexico, as an example.

Now with that, now there's also then considerations around India or Vietnam or other areas. And so there's that, again, that retooling and the disruption. So the two big ones that we talked about earlier, one is it's going to be from a cost issue. If ultimately those are implemented, it could bring pretty material increases to some of the pricing and some of the cost, and you may see that tamp down a little bit, ultimately, on demand. I still think, too, the ones that are likely going to be hit the hardest in the event of tariffs are likely small business. Larger businesses, larger ones, they have the ability to effectively through their scale, they can find additional suppliers and they can reroute to different organizations, countries, etc., relatively speaking. But a small business, if they don't drive a significant, you know, demand, they really, really, really need to be simply just as close as they can with their current suppliers they have and don't have the wherewithal to go find and build alternative supply chain.

So I believe that the challenge if we get tariffs to that level, it could certainly impact I think small business more so than midsize and enterprise. It still would impact everybody, but I think small business just doesn't have any operating flexibility, and that unfortunately I think could be a challenge.

The other one is, back to your earlier point, we have a lot of growth planned, and a lot of it's going to be needing some supply, and do we have supply stable, ultimately as all this goes, that ultimately provides, inventory when they need it, how they need it and allows the rest of the transaction to go through. So those are the two big ones and they're kind of connected.

I think economically, too, I think you know, again, we're looking in good shape. We look at the macroeconomic kind of forecast, for unemployment we may see a little bit of a bounce, a little bit maybe to 4.1 in ’25. We think it's going to come back down to 4.0 based on the data that we have. We think based on the data as well that we think inflation is probably going to land around the 2% Fed target probably mid-year. So that all looks really good, and GDP continues to operate just under 3, which is also again a very healthy number.

So all of those things as we talked about all look really good, barring anything that can disrupt it, and I think that's what we're really looking for is predictability. We want it steady state where we're not really worried about a lot of that because that could be the challenge. You know, it's just the uncertainty

Follett: So maybe just to wrap it up, Mike, what's the advice then to solution providers on what they should be doing to position themselves for success in 2025? Where should they be putting their focus and their emphasis?

Crosby: I think first of all, I think they should be positioning themselves for growth, and I think they should look for growth both from their own capability and capacity, but also making sure that upstream from a supply, if it's hardware that they need, if it's other things or requirements that they have, just reinforcing those relationships on where they see it. But I think they need to position the organization for growth.

And I think they're going to see it specifically around not only as we talked about this PC wave, but I think you're also going to see other adjacent categories also elevate a little bit as we tend to see with PC. That's kind of a core device. It tends to float all boats in some cases on some of the other categories that will also see a benefit.

So I think it's just from a mindset and from a from an overall capacity at the partner level, I think this is the year you need to plan for growth, and I think making sure that you are you're set up to be successful, right? That you've got those things aligned.

And then again, reinforce and double down the supply line, [make sure] that you have access to capital, all those things that are going to be critical, obviously the fuel growth.

So I think those are the pieces that I think they need. And I think what I've always experienced in my career is I think those are things that are top of mind every day to partners. And I think they really understand should be operating as efficiently as they can, but also planning for growth. And I think that's a big part of it.

Follett: Mike, thanks so much for joining me. It was great to see you.

Crosby: Great seeing you, always enjoy their conversation. Thanks, Jen.

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