The shocks of con­sol­i­da­tion

CRN - - EDIT OPINION - DHAVAL VALIA E-mail CRN Ex­ec­u­tive Edi­tor Dhaval Valia at dhaval.valia@ubm.com

Two de­vel­op­ments of the last fort­night clearly in­di­cate the churn and trans­for­ma­tion go­ing in the in­dus­try—IBM sell­ing off the x86 server busi­ness and Sony of­fload­ing Vaio PCs. Both de­vel­op­ments point to the fact that the tra­di­tional hard­ware mar­ket is set to con­sol­i­date. The PC mar­ket has al­ready shrunk from 381 mil­lion units glob­ally in 2011 to 314 mil­lion units in 2013, de­cel­er­at­ing at a CAGR of more than 7 per­cent. In In­dia, two na­tional OEMs— HCL and Wipro, have ex­ited the PC mar­ket. Glob­ally, Sony has sold its PC busi­ness, and an­a­lysts are pre­dict­ing that smaller global OEMs like Sam­sung, Fu­jitsu, and Toshiba may also exit the fray, sooner than ex­pected. Spec­u­la­tions have sug­gested Acer and Asus merg­ing their PC busi­ness. While this has been de­nied by both com­pa­nies, it can’t be ruled out go­ing for­ward.

The x86 server space is on the brink of con­sol­i­da­tion too, set in mo­tion by IBM. Not only has this mar­ket be­come com­modi­tized, the eco­nomic down­turn cou­pled with in­creas­ing adop­tion of cloud com­put­ing and vir­tu­al­iza­tion, has led to its neg­a­tive growth. With the emer­gence of con­cepts like SDN, the net­work­ing seg­ment is bound to see a ma­jor con­sol­i­da­tion as well. Net­work­ing hard­ware sales have been muted for the past cou­ple of years and com­pa­nies like Avaya and Ju­niper are fac­ing tough times.

Clearly, the con­sol­i­da­tion story will play out in a ma­jor way over the next 2-3 years and the IT ecosys­tem is likely to be very dif­fer­ent than what it is, by 2018. What this means for the chan­nel is that their busi­ness will be sig­nif­i­cantly vul­ner­a­ble, and to sur­vive, they will have to pre­pare them­selves to ab­sorb many big shocks emerg­ing from the con­sol­i­da­tion.

For in­stance, Sony’s sell-off has put its part­ners in a ma­jor soup. Ja­pan In­dus­trial Part­ners (JIL) which ac­quired the Vaio busi­ness has stated that it will ini­tially fo­cus on con­sol­i­dat­ing and sta­bi­liz­ing the PC busi­ness in Ja­pan. An­a­lysts have in­ter­preted this as JIL with­draw­ing from var­i­ous ge­ogra­phies in­clud­ing In­dia. This will be cat­a­strophic for Sony part­ners. A re­gional dis­trib­u­tor told me that the with­drawal of Vaio from the In­dian mar­ket, will dent his topline by ` 40 crore and force him to cut down on op­er­a­tions and em­ploy­ees.

Sim­i­larly, a IBM part­ner ad­mit­ted a ma­jor dent due to the server busi­ness sell-off. This part­ner’s IBM busi­ness is close to ` 20 crore an­nu­ally with x86 server busi­ness con­tribut­ing 70 per­cent. His ex­pe­ri­ence with Len­ovo for PCs hasn’t been any good and hence he is not keen to align with Len­ovo post the ac­qui­si­tion. As a re­sult, he will need to align with HP or Dell, and the part­ner re­al­izes that chang­ing the ven­dor is a tough job.

If part­ners have to sur­vive they will need to brace them­selves to take such heavy blows. Hope­fully these blows will help them harden up and set them on the right path.

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