Channel report: VARs upbeat about Q4 2006, 2007

Posted on November 13, 2006

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By Dave Simpson

—Robert W. Baird & Co. recently completed a survey of 60 value-added resellers (VARs), focusing primarily on revenue expectations, OEM partnerships, and technology trends. One of the general conclusions is that the channel is poised for a positive Q4, as well as for 2007.

For example, 38% of the resellers were above plan in the third quarter, versus only 23% in the preceding quarter. And about 39% said they were on plan, with only 23% below plan.

The outlook for the fourth quarter is also positive, with 62% of the VARs being more positive (vs. the third quarter), vs. 31% neutral and only 5% more negative. (The remaining 2% said that it was too early to tell.)

In terms of next year, 28% of the VARs expect much higher (more than 28%) revenues in 2007 vs. 2006, while 68% expect higher (5% to 15%) revenues. Resellers' future revenue expectations were the highest since Baird's Q1 2005 survey.

On the down side, storage resellers in general report a more aggressive pricing environment compared to previous quarters. For example, 42% report more-aggressive pricing, compared to only 32% in the previous quarter.

Technologies: Encryption, iSCSI
The Baird surveys also poll resellers on end-user interest in, and adoption rates of, various storage technologies, and the most recent report focused on encryption and iSCSI—both of which are picking up significantly in terms of end users' spending plans.

For example, approximately two-thirds of the resellers report either moderate or strong demand for storage encryption. Baird analysts expect tape encryption to be the first step in the trend toward enhanced data security (followed by disk-level encryption), with vendors such as NetApp/Decru and NeoScale poised to benefit from this trend.

Based on the results of the VAR survey, iSCSI is starting to realize some of its potential. For example, more than half (51%) of the respondents are seeing either strong or moderate demand for iSCSI storage systems. Another 43% of the resellers said their end-user customers are exhibiting "some interest" in iSCSI, or are evaluating the technology, while only 6% said that demand for iSCSI products was weak or non-existent.

The Baird survey also covered servers (in addition to storage), and one of the more striking results was the penetration of VMware. For example, the resellers report that (on average) 23% of their customer base has implemented VMware, and they expect a 45% penetration within two years. (For more information on storage-related product announcements at the recent VMworld conference, see Virtualization: Product highlights from VMworld.)

Baird surveyed 60 resellers, with combined annual revenues of about $15 billion and a mean revenue of $263 million per year. In terms of geographic distribution, 74% of the VARs were in the US, while 26% were international.

For more information, go to www.rwbaird.com.


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