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Solutions providers optimistic, despite dour economic forecasts

Economic forecasts show the economy is leveling off and major vendors are eyeing the SMB market, leading analysts to predict tough times for the IT industry. But the channel is confident that 2007 will treat it well.

Value-added resellers (VARs) and integrators are being cautious in their predictions for the IT business next year. But, despite spotting many of the same trends that produced a generally dour forecast for the IT market by analysts polled by, the channel companies are relatively optimistic about the coming year.

Analysts from Forrester Research Inc., Gartner Inc. and IDC said that stagnant growth in the overall economy and a shift by major IT vendors to a focus on small- to mid-sized businesses (SMBs) would force the channel into a more consulting and services-based role.

IT predictions for 2007
Analysts predict tough times for IT in 2007's forecasts for 2007

They predicted global IT growth will remain at about 6% -- roughly what it was during 2006 -- that margins would continue to thin and major vendors would be trying to steal business from the channel in the SMB market. But several systems integrators and managed services providers (MSPs) said their businesses are growingly strongly and major vendors in their same technological space will probably go after larger customers.

"Hey, there's so much pessimism out there. The analysts are always looking for excuses to say it's not good," said Todd Swank, director of marketing at Nor-Tech, a Burnsville, Minn.-based systems integrator and manufacturer of custom computers. "Maybe the old ways of doing business might be at risk ... but the new opportunities that are in front of us are going to blow things away."

The past year was "without question [the] largest year from a sales perspective" for ViaWest, a managed data hosting provider based in Denver, Colo., according to Steve Prather, the company's senior vice president of sales operations. ViaWest's business grew about 46% in the third quarter of 2006 alone, Prather said, and "not a single indicator" makes him think that will change during 2007.

Big-name vendors like Oracle Corp. and SAP are gunning for smaller customers -- many just above ViaWest's target-size range of between 200 and 300 employees. "Those businesses have never been successful in capturing the small- to medium-sized market, and they've never targeted it," he said. "At least historically, I've never seen any of them that have been successful in doing so."

The new opportunities that are in front of us are going to blow things away.
Todd Swank
Director of MarketingNor-Tech

There's no denying that hardware prices continue to fall, increasing pressure on integrators to move away from reselling, and towards consulting and services, according to Peter Phelan, president of Manassas, Va.-based Turnkey Network Solutions, Inc. That shift, which the analysts generally said would increase in speed during 2007, has been going on long enough that many hardware integrators have been able to adapt.

For example, customers have become more interested in what the products do than who makes them, Phelan said. As a result, customers are less likely to go first to a manufacturer for a piece of hardware and think about what to do with it afterward. That gives integrators more opportunity to generate leads for a project or solution sale, rather than having to rely on vendors for leads about a specific product.

Like much of the rest of the IT industry, Phelan said, Turnkey Network Solutions is shifting towards managed services and partnering with other specialized service providers to offer customers combinations it can't provide on its own -- such as software development or remote backup.

"With the product model, [hardware] was definitely a foot in the door. It could very well open up a lot of opportunities for you," Phelan said. "But I think that's starting to change. IT companies are becoming more solutions providers. I think in the coming years we're going to have to educate [customers] on the solution, not the product."

Swank said the last quarter of 2006 was a bit slow for computer sales as people waited for Windows Vista, but he's already seeing quotes go up for sales in the coming year. And with Microsoft putting its marketing weight behind the new operating system, he said, more upgrades will mean more purchases for the IT industry.

"I'm an optimist," he said. "I think 2007's going to be a big year for everyone in computers."


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