Raymond James: Channel Companies Outperforming Vendors

Distributors and solution providers are seeing better financial results than most OEMs these days, according to financial analyst firm Raymond James.

In a recent research note, Raymond James reported that "based on recent results, distributors and resellers are performing better than their key vendors" amid market shift and disruptions around technologies like cloud. While OEMs have delivered disappointing financial results and shaky outlooks, the report states, channel companies have delivered more impressive financial results with top distributors and resellers expectations for both revenue and earnings per share (EPS) over the last two quarters.

"While we agree that the cloud is changing how IT is consumed, we believe that disruption to distributor/reseller models is less likely than most investors anticipate, as these companies expand their portfolio of cloud solutions and forge relationships with key cloud service providers," the Raymond James report stated. "Customers typically rely more heavily on channel partners during periods of rising complexity, while the fragmentation and hard-to-reach nature of the middle market makes it inherently difficult for vendors to penetrate on their own."

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Specifically, the research note highlighted the recent performances of Ingram Micro and CDW as the top two channel stocks, thanks to their growing portfolio of next-generation technology solutions. Raymond James also said Avnet and Arrow are executing well in the data center space. The Raymond James report also stated that most emerging storage and networking vendors employ a channel-centric go-to-market strategy today because partners are better equipped to handle the fragmentation and complexity of the midmarket.

The report predicts that cloud service providers will take a similar approach to the channel, citing the blockbuster Google-CDW partnership around Google Apps for Business. "We expect service providers to undertake a similar strategy, and expect more announcements akin to the recent Google/CDW relationship," the report states.

Bob Goldstein, CEO of Single Digits, a networking solution provider based in Manchester, N.H., said he agreed with Raymond James' take on the channel's ability to adapt to market shifts and changes in customer buying patterns.

"I think solution providers like us are oftentimes in a better position. Because of our high level of customer touch in a hyperpersonalized industry, we're able to meet the needs of the customers," Goldstein said. "We're able to adapt our services and provide something that's not tied to a specific vendor product or technology."

As an example, Goldstein said Single Digits has been able to leverage trends like bring-your-own-device, which has caused headaches for customers as well as certain vendors. "The rapid proliferation of BYOD and mobile devices has created a lot of disruption in the market," he said, "but they've also created opportunity for us."

PUBLISHED MARCH 18, 2014