Overall, the Canadian economy had a good year. Economic indicators are pointing in the right direction, and Statistics Canada is reporting low unemployment at 5.7 percent and high GDP growth.
Similar positive momentum is seen within our IT hardware Distributor Track information. In fact, there wasn’t a negative quarter result from Q4 2015 to Q4 2017. Every single quarter during this period has posted positive revenue growth. Q4 2017 showed revenue growth of +7 percent, which closed the year at +8 percent.
In terms of total revenue, Q4 2017 was the largest quarter of the year; this is the third year in a row with this trend. Traditionally the Canadian IT hardware distribution market was used to seeing a bigger Q1 due to government year-end in March of every year, when most of the spending took place in the government sector.
This growth indicates increased investment in upgrading IT infrastructure and businesses spending on new and better technology adoption. Our data shows double-digit growth by national integrators and small and large VARs in Q4 2017.
This growth mainly came many categories that showed significant dollar and percent growth. The highest dollar growth was from notebooks, however, the percent growth is in the single digits, but it accounted for 13 percent of all positive dollar gains. Notebook accessories grew alongside notebooks, with +14 percent revenue growth. It is important to mention that more than half of the revenue in notebook accessories came from docking stations, which are also growing. The more notebooks are used in business, the more docking stations will be required for convenience of recharging and to avoid manually connecting other devices to the notebook if the user has to move to attend meetings in different locations.
The categories that showed double-digit growth were desktop computers, monitors, solid state drives, memory, video cards, all-flash arrays, and workstations. Desktops are improving in performance due to their compact size; as a result, small form factor desktops, which are a little more than half of all desktops sold, grew in revenue by +38 percent.
Solid state drives make up another category that has shown growth over the past couple of years. Their speed, solid form factor, and reliability are some of the features that make them preferable to traditional rotating hard drives. About half of the revenue in SSDs came from enterprise storage/server-type devices.
In summary, it is evident the growth is spread across many categories in the Canadian IT hardware distribution market rather than being concentrated among top categories.
With the strong growth rate in Q4 and previous quarters, it will be interesting to see how Q1 2018 performs, given the increased economic momentum in Canada.
Ali Naqvi manages the IT hardware Distributor Track business, which encompasses all IT hardware distribution partners in Canada. Working closely with distribution partners, Ali helps them understand and utilize NPD data to highlight positives and uncover opportunities.
Read more posts by Ali Naqvi here.
The United States indirect hardware market, which includes sales from reseller and distribution partners, grew from $55 billion in 2016 to $57 billion in 2017, a 3.6 percent growth rate that outpaces annual United States GDP growth. Overall, the hardware market in the channel remained relatively healthy despite continued pressures from smaller firms moving their infrastructure off-premise to cloud providers.
The PC market, which includes notebooks, desktops, workstations, thin-clients, and point-of-sale PCs, grew 10.9 percent year-over-year in unit shipments. From a sheer volume perspective, notebooks and desktops represented the bulk of volumes, growing at 12 percent and 10 percent, followed by workstations (+26 percent), thin-clients (-11 percent) and point-of-sale PCs (+31 percent). Overall, demand for notebooks and desktops was healthy – firms upgraded to Windows 10 in general business environments, and there was strong Chromebook adoption in the education vertical, which we expect to continue. In addition, the channel was able to benefit from more volume getting pushed through the channel. Although a fraction of the overall PC market, strong growth was exhibited in the workstation segment as more firms explored data-mining strategies in pursuit of transforming their businesses with analytic solutions.
In the networking market, wireless access points (+20 percent) and security appliances (+26 percent) continued to be growth engines for the overall category, with no signs of slowing. In our opinion, network security coupled with managed services (e.g., vulnerability services, etc.) will continue to be sought-after products and services as more firms address internal and external threats that must be mitigated. Growth of access points will continue to be a driver of the category; firms are upgrading their infrastructure to 802.11ac Wave 2 and will eventually migrate to 802.11ax to match the ever-increasing demand of more devices accessing the network. In the switching category, we are seeing strong growth in the data center switching segment from firms such as Cisco, Juniper, HPE, and Arista as firms continue to virtualize their infrastructure and deal with more east-west traffic.
In the storage and computing areas, the x86 server market declined -13 percent as more firms continued to virtualize their infrastructure, reducing their physical footprint and moving workloads to hyper scale providers (e.g., Amazon AWS, etc.). We expect this to continue. In our opinion, workloads that will remain under threat include applications such as customer relationship management (CRM), sales force automation (SFA), and marketing and collaboration, due to more distributed workforces and project-based work in these segments (e.g., remote sales, etc.).
In the enterprise storage market, growth drivers continued to be the all flash array (+72 percent) and hyper converged market (+136 percent), displacing traditional enterprise storage markets. Use cases for all flash arrays continued to move beyond niche areas such as mid-market databases and VDI environments. Growth of hyper converged infrastructure, although still nascent, continues to grow in vertical markets with larger distributed environments (e.g., education, healthcare, and financial services industries).
We believe the indirect channel for 2018 will continue to exhibit above-GDP growth rates due to favorable tax policies and adjusted regulations that have the propensity to stimulate small business growth. Also, technologies that should continue to do well in the market are ones that drive productivity improvements, enhance customer and partner experience, protect critical infrastructure,and allow channel partners to layer on higher-margin services.
As The NPD Group’s Director of Industry Analysis for Commercial Technology, Michael Diamond offers expert analysis and commentary about the shifting commercial market. Through his focus on driving deeper insights with clients, Michael is improving core business-to-business (B2B) services and helping B2B clients navigate the channel more effectively.
Read more posts by Michael Diamond here.
