According to the IMF, Canadian real GDP growth currently lags behind the US and several other advanced economies. We are also one of the countries with very high debt to disposable income ratio among OECD nations.
However, the Canadian technology distribution market, as measured by The NPD Group, has been defying all odds posting continuous growth over the last three years. In 2018 total revenue grew 8%, topping the 9% growth number registered by the industry in 2017. While that pace slowed slightly in 2019, we still saw steady growth of 4%. It’s certainly true that the growth has slowed, but if we peel the onion a little more, we see that certain key periods actually performed quite well. In 2019, Q1 and Q4 grew by 2% whereas Q2 and Q3 posted 5% and 7% growth respectively.
Some may argue that 2% growth in last quarter of 2019 is still quite positive, especially if you compare that number with overall economic performance or even with other industries. Nevertheless, there are differing opinions about the slower growth cycle. A good favorable argument could be the immense growth we saw in 2017, 2018 is hard to repeat.
The growth in previous years was mainly driven by software and PC segments, each accounting for almost a 3rd of total growth dollars. The slowdown in last year’s growth was driven by these same categories. However, software and PCs remain the most important segments of the market, not only because they account for the majority of the incremental revenue but also because of the dependency of component categories which also affects overall revenue.
Moving forward, I anticipate that the market will turn to PCs to help drive growth. Microsoft’s announcement of Windows 7 end of support is going to prompt those businesses which are still sitting on the sidelines to upgrade those systems with windows 10. They may decide to delay this process a little longer using legacy apps but sooner or later they are going to realize, it’s much better to get the new Windows environment which not only will work better with newer apps but also provides better connectivity to other systems, in the end providing a much better computing experience.
Software will continue to grow as we see more businesses moving to software defined technologies which includes storage, infrastructure and platform as a service to cloud computing. Software growth is relatively stable as more subscription-based offerings replace one-time investments options.
Another growth area is digital transformation, which touches on so many categories in hardware and software alike. If you are scanning and storing documents, you are participating in this shift to digital. Companies that embrace this transition sooner rather than later will benefit by staying relevant to emerging market needs and, as a result, will likely generate higher revenues in the long run.
All that to say, 2020 will be a challenging year for the Technology Distribution market but there are always market niches available that every vendor, reseller and distributor can capitalize upon.