The third quarter of 2022 was an extraordinary three months for the European IT distribution channel. Infrastructure, software, services and computing components fared particularly well, with the strength of business demand and easing of supply chain issues taking distributors by surprise.
We now stand at a pivotal moment.
Why? In part, because we have the unusual situation of no stock in some categories and excess stock in others. That could mean lead times of up to a year for some networking equipment but excess inventory and discounting of monitors and PCs. There is also a divide between consumer and business confidence: inflation and cost-of-living concerns are hitting consumer spend but office remodelling and working from home are underpinning rising corporate investment and resilience. The prospect of more EU Next Generation investment and new sustainability mandates are also buoying the market. Our ChannelWatch report finds 62% of IT resellers expecting their business to perform better over the coming 12 months.
All of this has helped to raise our forecast for 2022 European IT distribution sales growth from 3.2% at the start of the year to 3.7%. That would be a fantastic performance considering how well the sector did in 2021 and 2020 and the background of a gloomy IMF GDP forecast which downgraded global growth over the same period from 3.2% to 2.7%.
For Q4 2022 and beyond we have split our analysis into six key sectors:
PC demand will remain muted due to slumping consumer confidence as inflation pushes prices up. Businesses will also remain cautious, with demand for PCs likely to be pushed out, and there are no major government-backed education projects on the horizon.
Displays will be heavily influenced by a continued decline in consumer demand on the one hand and rising business demand, due to office refurbishments, on the other. A return to mass live events should also help sales of Large Format Displays (LFDs).
Imaging sales will continue to be influenced by geopolitical and economic uncertainty and high inflation, undermining both consumer and corporate confidence. SMBs will be the main driver of the printer market for the rest of 2022, although supply chain challenges remain.
Enterprise infrastructure is on a roll. Datacentres will see the greatest growth of any sector over the next few months, and there will be major opportunities in security software and services. Infrastructure software will continue to provide a solid revenue stream for distributors with the skills and focus to take advantage.
Enterprise storage and server sales will perform well – despite the loss of the large Russian market –thanks to a reduction of server backlogs, improved component availability and continued strong demand for storage among businesses.
Enterprise networking sales, especially those of switching products, will benefit significantly from improvements in supply chains. Hybrid working and digital transformation will also drive demand, although falling prices may depress revenues and demanding year-on-year comparisons may limit growth.
Despite our positive forecast for 2022, we do acknowledge the gathering headwinds. Yes, there is resilience in the market, especially on the commercial side. But there is also risk. Continued inflation, driven by a wage spiral and high energy prices in Europe, will continue to plague the region in winter 2023–24. The war in Ukraine is having a major impact on the market in Germany and similar countries. With the prospect of a recession in 2023, economic confidence may yet fall even further.
That is why, although our Q4 2022 forecast is for 5.8% year-on-year revenue growth (ex telecoms), our forecasts indicate the figure will decline over the succeeding quarters as those headwinds bite. That said, we expect the IT channel to grow roughly half a percentage point more than forecast GDP. We will watch the market closely in 2023 to see how our predictions pan out.
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