GTDC Chief: Distribution Sales Stabilizing In 2016 As Security Strength Offsets Storage, PC Struggles

Distributors stemmed several quarters of falling sales as robust demand for security and data management offerings neutralized continued weakness in the storage and PC segments.

"A distributor has hundreds of vendors and can leverage any vendor's growth," said Tim Curran, CEO of the Global Technology Distribution Council (GTDC). "As tough of an industry as it is for margins, distributors are protected by the breadth of their vendor mix."

After three consecutive quarters of year-over-year sales declines exceeding 2 percent, distributors saw their annual U.S. hardware and software sales grow by 0.1 percent in the second quarter of 2016. Specifically, Curran said sales improved dramatically in June for all distributors.

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"June ended very well, and we're hopeful that trend will continue," Curran said during a keynote address Monday at CompTIA ChannelCon 2016 in Hollywood, Fla.

The storage segment continues to struggle, with year-over-year storage hardware sales falling by 14 percent in the first half of 2016 and storage media revenue declining by 12 percent during that period. Hewlett Packard Enterprise, EMC, NetApp, Cisco, Seagate, IBM and Hitachi are the largest vendors selling storage products through distribution in North America, Curran said.

Weak storage hardware demand was the primary contributor to overall 2016 sales declines in the small solution provider and large solution provider market segments, Curran said.

"The storage market was very soft," he said.

PCs continue to be the largest single revenue stream for distributors, with devices such as the MacBook Pro, Lenovo ThinkCentre, HP EliteDesk and the Google Chromebook driving $8.7 billion of sales through distribution in 2015.

The segment experienced continued softness in the first six months of 2016, with year-over-year power sales falling by 9 percent, chips and components revenue declining by 7 percent, and client device sales slipping by 2 percent.

PC sales were lackluster in the small solution provider category in the first quarter, but fared slightly better in the second quarter, as well as in the large solution provider space. Direct market resellers, though, enjoyed tremendous growth in the PC space.

Revenue from tablet and handheld device sales soared by 30 percent in the first half of 2016, Curran said, as the disappearance of low-end tablets from the marketplace led to an enormous increase in the average selling price. The dramatic revenue growth comes despite a 5 percent decrease in units sold, he said.

"The tablet/handheld category is showing enormous pricing changes," Curran said.

The picture was much rosier in the networking space, where digital imaging sales through distribution jumped by 8 percent and networking communication sales inched ahead by 1 percent. Cisco, Riverbed, Juniper, Hewlett Packard Enterprise, Fortinet, Palo Alto Networks and F5 Networks are the largest distribution-focused networking companies, Curran said.

Software vendors such as Microsoft, VMware, IBM, Symantec, Red Hat and Oracle also saw robust demand in the distribution-oriented business, Curran said. Year-over-year security sales climbed by 13 percent in the first half of 2016, networking software sales increased by 9 percent, programming sales jumped up 20 percent, and data and information management sales skyrocketed by 53 percent.

Curran said distributors have placed major bets on both the physical and network security space, increasing their stickiness with offerings such as performance assessments, comprehensive security analytics tool sets and compliance-focused tool sets.

Some distributors, such as Avnet, are adding value by offering training and education around topics such as patch management, antivirus offerings, firewall offerings, and the impact of a successful attack.

Too many end users, though, are still unsure of what security measures to take from a regulatory or best practice perspective, Curran said, while solution providers suffer from a critical shortage of security-proficient talent.

"The distribution industry's basics still work because the base of this industry is multivendor solutions," Curran said. "This is an industry that's alive."