At the recent Canalys Channels Forum held in Berlin last October, veteran tech analyst Steve Brazier delivered a cautionary outlook on the hardware industry, suggesting a significant shift in the landscape of tech sales. His insights resonate with current trends in the artificial intelligence (AI) automation sector, pointing to emerging challenges for businesses within this market.
Brazier, who formerly served as CEO of Canalys and now holds a Fellowship at the organisation, indicated that after over three decades of substantial growth driven by hardware sales, the industry is entering a period of stagnation, with most segments such as personal computers, servers, and networking equipment showing no significant growth. "For 30 years or more, the channel has actually been easy to run," he remarked, acknowledging that businesses had prospered simply by following the launch cycles of new hardware products. However, he warned that "we're calling a turning point today," as traditional growth drivers have peaked.
This downturn is reflected in the financial struggles of major technology vendors. Cisco reported a 15 per cent decline in its switching and router business for the fiscal year 2024, while HP Enterprise (HPE) also faced challenges, seeing growth driven chiefly by sales in AI servers—transactions that bypass the traditional reseller channel. HPE's reliance on AI sales has seen its revenue from the channel drop from 80 per cent to just 65 per cent, signifying a shift towards direct sales models.
Brazier expressed concerns that emerging technologies such as the metaverse, IoT, and 3D printing have yet to establish themselves as significant business segments. He surveyed an audience of approximately 1,000 tech executives and cautioned against dismay, clarifying that while the hardware industry is not in decline, it remains "essentially flat, a replacement business." He highlighted cybersecurity as the only area exhibiting robust growth, unaffected by the broader stagnation in the hardware sector.
The current economic landscape presents a more severe situation in Europe. Brazier attributed this to slower economic development compared to the US, with one notable difference being immigration policies. He asserted that robust immigration levels in the US facilitate economic expansion, stating, "If you want more growth, we need more immigration." Companies like Computacenter, which have both UK and US operations, have reported better performance amid prevailing trade slowdowns.
The narrative of consolidation continues as larger firms acquire smaller tech service providers to bolster cloud service offerings, as evidenced by Insight's acquisition of SADA and CDW's purchase of Mission Cloud. This trend highlights a shifting focus towards cloud technology amidst an evolving market structure.
Industry leaders responded to Brazier’s assertions with differing levels of optimism. Simon Ewington, HPE's global channel and partner ecosystem leader, acknowledged Brazier's tendency to provoke discourse but maintained confidence in the ongoing growth of the IT sector driven by the critical nature of digitalization. In contrast, James Rigby, CEO at SCC, suggested that while times have been challenging, innovations such as Windows 11 and advancements in AI could foster renewed demand.
The report points to a general sense of apprehension among tech buyers due to geopolitical uncertainties, constraining budget allocations within companies. As organisations increasingly extend their sales cycles, the path to growth within the channel appears increasingly competitive.
Brazier also highlighted that the disproportionate investment flowing into the AI technology sector, driven by large tech firms, is not proportional to the returns seen by smaller players in the channel. As public market valuations of major tech companies rise, channel partners have lagged significantly, with the value of investments in public channel partners notably inferior to that regarding broader stock indices.
He concluded with a stark warning about the precarious position of the tech industry in Europe, suggesting that European businesses are paying a "tax" to American firms due to a lack of local growth in tech, a scenario that could worsen with the continued rise of AI investments.
Brazier's analysis adds to the discourse on the intertwined fates of traditional hardware sales and the rapidly evolving AI landscape, signalling that the effects of these transformations may reverberate throughout the entire technology sector.
Source: Noah Wire Services