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IDC: Channel market to grow for server, storage, networking hardware

The forecast for indirect sales of server, storage and enterprise networking hardware is a good one, says IDC. Analyst Paul Edwards breaks down each channel market.

Good news for value-added resellers (VARs) selling server, storage and enterprise networking hardware: According to IDC, the channel will continue to play a critical role in the sale, delivery and service of these technologies. The analyst firm forecasted that the channel market in North America will increase at a compound annual growth rate of 2.7% between 2013 and 2018, with the indirect share of spend being worth $38.1 billion, or 61.6% of total spend, by 2018.

"Storage, networking and server hardware are still big from a channel perspective, because a lot of the clients that are buying those products have a need within their infrastructure, and their infrastructure is of a big enough size that it requires the skill sets of the partners to deploy those products," said Paul Edwards, director of infrastructure channels research at IDC and author of the report, North America Server, Storage and Enterprise Networking Channels 2014-2018 Forecast: Direct Versus Indirect IT Spending.

Enterprise networking channel market

Growing at a rate of 3.8%, enterprise networking hardware has the highest growth rate in the channel. By 2018 Edwards said the channel piece will be $17.3 billion in North America. However, direct sales growth, which is driven by enterprise data center installations, will be slightly higher. This is due to new entrants in the enterprise networking market primarily selling direct.

But Edwards said, "That's all tempered by the fact that there will still be a strong channel focus of the big players -- Cisco and HP, for example. Those guys continue to dedicate their strategy to their partners and they have a strong channel, so that will continue to make that a big part of the market for those guys."

Storage, networking and server hardware are still big from a channel perspective.
Paul Edwardsdirector of infrastructure channels research, IDC

Data Hardware Depot, a Santa Barbara, Calif.-based VAR, is primarily focused on Cisco networking equipment but also sells servers and storage. "As a company we've had some great growth. Our business is healthy and growing, and the drivers for the business certainly continue to be in place, which is, people need more bandwidth at the end of the day in order to do business. It's like building freeways. As soon as they're built, we need bigger ones. The hardware is how you do that," said Brian Court, director of sales for Data Hardware Depot.

Edwards agreed, "Networking is a core part of any infrastructure, and there are higher requirements and demands for quality networking infrastructure in order to support these growing needs within these end customers. The cloud is certainly a big part of this because that's creating the need for the appropriate bandwidth to support that part of the market. I think that it's also a market where there's a lot of stuff partners can do to add value for their customers. There's a lot within the network that lends itself to partners adding services value on top of what they're doing and all that good stuff."

Storage channel market

As with networking, IDC predicts slightly higher growth in vendor-direct sales of storage, but Edwards said, "The channel is going to drive more business than vendor direct. The channel piece is worth $9.6 billion. That's still a good chunk of spend."

He added, "Direct trending in storage will be the result of the increase in demand for storage within hyperscale Web farms. Selling into those markets is more of a direct play than a channel play, but again, that will be offset somewhat by the increase in channel focus by some of the big players, like EMC," Edwards said.

"Storage is an interesting piece," Court said. "It is without a doubt growing." He likened storage to a house: You don't think you need the extra room, but "we're storing stuff, because we have the space. Electronically, we do the same thing."

Server channel market

Out of the three technologies -- storage, network and servers -- the server market is expected to experience the slowest growth, with channel growth forecasted at 2.2% and vendor growth at 1%. "The 2.2% is based on the fact that x86 servers continue to be a sought-after commodity," Edwards said. The high growth in blades, the expansion of indirect channel business by the likes of Dell and Lenovo, and bigger players always being in the channel will also contribute to this growth, he said.

Vibrant Technologies sells refurbished servers, storage and networking hardware. Corey Donovan, COO for the Minnetonka, Minn.-based VAR, said that Vibrant's growth is in line with IDC's forecast, and that server commoditization helps his sales because clients are no longer required to run software on specialized servers. "They can use just about any type of hardware that's compatible, and those compatibility lists are growing. As a result, they ultimately want to find equipment that best serves their needs. They are already looking outside their relationships due to the openness of the technology. As a result, they look at refurbished or white-boxed server providers as alternate channels," he said.

Server channel market growth, however, will be tempered with what's going on in vendor-direct design. "ODMs [original design manufacturers] are building purpose-built servers for hyperscale Web farms, and that is more of a direct play. As that market increases, it will increase the size of the total server market and it will increase the vendor-direct share of the market," Edwards said.

Regardless of growth rates, a channel company's success selling storage, server and networking hardware in the near term will depend on its ability to address business issues through technology. "Technology has a much broader impact on businesses now than it has in the past, which means that lines of business and executives are more and more involved in the decision-making process around solutions and technology. That's based on their lens of seeing things from a business strategy and business outcomes perspective," Edwards said. "Partners need to position themselves around their customers, and focus on that business lens to gain success and provide value within the customer base that they haven't necessarily engaged a lot in, in the past, because it wasn't a requirement."

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