The pulse of the channel

This year has been characterised by hits and misses for the Middle East IT channel

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By  Clayton Vallabhan Published  November 19, 2012

This year has been characterised by hits and misses for the Middle East IT channel. The Arab Spring, followed by new governments that were urshered into power in some countries in the region, the ongoing tensions and the trade embargo on Iran, the need to address large stockpiles of inventory in the channel due to misguided market dynamics and several other business challenges have left the channel in limbo.

The 2012 Channel Confidence Survey asked prominent players in the business the toughest questions to gauge the state of business in the regional channel. In the pages that follow, this year’s Channel Confidence Survey brings some candid facts about the state of business in the Middle East IT sector. So what does the future look like in Q4 and 2013? Read on to find out...

How did trading levels during the first half of 2012 compare with the same period last year?

With the Arab Spring last year and a trade embargo on Iran reinforced earlier this year, the channel was hit hard and this resulted in a lot of inventory being held with no re-export destination in sight. When partners realised diversification was key to survival, new markets started being explored and new business routes to the CIS countries, Africa and other untapped markets began to be formed. The Channel Survey revealed that 35% of channel partners were able to garner single digit growth, and 31% actually recorded double-digit growth year-on-year. Nearly a quarter of the respondents however said that their businesses were flat and that there was no significant gain or loss.

Single-digit growth: 35%
Double-digit growth: 31%
Business was flat: 24%
Single-digit decline: 4%
Double-digit decline: 6%

What is your main financial priority during the second half of the year?

Even with the economic climate continuing to be difficult this year, the focus for channel partners has revolved around traditional financial priorities. Focusing on profitability and generating revenues both featured high on the agenda for most of channel partners polled, clocking in at 35% each. Nearly 18% of the channel was focused on improving gross margin for the second half of the year, while 8% said they will be concentrating on collecting account receivables. Only a small proportion, representing 2% of the channel, said that reducing expenses and better cash flow management was a priority for their business during the rest of the year.

Better cash flow management: 2%
Collecting accounts receivables: 8%
Focusing on profitability: 35%
Generating revenues: 35%
Improving gross margin: 18%
Reducing expenses: 2%

How confident are you that trading levels during Q4 will be stronger than the same period last year?

Confidence levels in the channel are on an upswing and a large majority of the channel is looking forward to trading levels getting much stronger in Q4 2012, compared to the same period last year. About 33% of the respondents polled said that they are very confident of trading levels trumping last year’s record, and 41% said that they were slightly confident of a better Q4. However, 18% of the respondents said that they were uncertain of how Q4 may pan out, with 4% indicating that they were slightly unconfident. A further 4% of those polled said that they were very unconfident about their business prospects for the fourth quarter this year.

Slightly confident: 41%
Very confident: 33%
Uncertain: 18%
Slightly unconfident: 4%
Very unconfident: 4%

If you are budgeting for a year-on-year increase in sales during Q4, how strong do you expect this growth to be?

As the channel brims with optimism, nearly 88% of those polled said that they are looking forward to a considerable increase in sales for Q4 this year. A cautious 12% said that they are targeting up to a 5% increase in sales in Q4 2012, while 22% said they were confident sales would rise at least 10%. Nearly 23% were confident of achieving close to a 20% increase in sales, while 23% said that there is enough opportunity to realise a 30% growth in sales. Only 8% broke the 30% barrier and said they were confident they could achieve above a 30% increase in sales. On the other hand, about 12% of respondents said that they were not expecting any increase in sales growth for Q4 2012.

0% - 5%: 12%
5% - 9%: 22%
10% - 19%: 23%
20% - 29%: 23%
More than 30%: 8%
Not expecting sales growth: 12%

If you are budgeting for year-on-year profit growth during Q4, how strong do you expect this growth to be?

Pure sales results alone do not guarantee profitability. From the total respondents surveyed, 82% said that they are confident of an increase in profitability, while 18% were not so optimistic and indicated that they are not expecting any growth in profit. Nearly a quarter of the respondents said that they would easily achieve a 20% increase in profitability for Q4 this year, while 21% said their profits could grow up to 10% compared to last year. About 20% of those surveyed said profits would grow moderately. Only 8% felt that an increase in profits of more than 30% was attainable in Q4 2012.

0% - 5%: 20%
5% - 9%: 21%
10% - 19%: 25%
20% - 29%: 8%
More than 30%: 8%
Not expecting growth: 18%

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