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Channel mired in networking depression

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The networking market remains in a state of deep depression, with recovery not expected until the second half of 2003, and resellers in particular feeling the pain.

A survey published by channel analysts Global Touch tells a story of declining volume, compressed gross margins, and flat 'add-on' sales.

Telco-orientated resellers are facing particular pressure from brokers/liquidators and service providers selling networking equipment below cost. And in the corporate sector things are scarcely better with firms simply not spending money - especially on networking kit - unless absolutely necessary.

Recovery in the market is dependent on wider economic and political factors, which could conspire to make matters still worse, Global Touch forecasts.

"Our best prediction is that the market should begin to recover in the second half 2003, assuming no war or a no 'double dip' U.S. recession. If either occurs, which is likely, the recovery that is so desperately needed may be pushed well into 2004, creating disastrous market conditions," said Denise Sangster, President and chief executive of Global Touch.

Looking at Q3 2002, 94 percent of US respondents to Global Touch's survey said networking equipment sales were either below or extremely below the same period in 2001. Almost three in four (71 per cent) of European respondents indicated the same, while the remainder (29 per cent) said sales were flat.

No-one reported improved sales.

There was a significant increase in purchase order and projects cancellations in Q3 compared to Q2 2002, the survey found.

Global Touch also quizzed resellers on sales of from the major equipment manufacturers.

US respondents indicated that sales of Juniper Networks were moderate, Extreme Networks sales were flat, 3Com, Cisco Systems, and Enterasys sales were flat-to-very weak.

European respondents indicated that 3Com, Cisco Systems, and Enterasys sales were flat-to-very weak, Extreme Networks sales were weak-to-very weak, and Juniper Networks sales were flat.

Resellers expect equipment sales from most vendors to be either flat or down in Q4 2002, with the only bright spot been an expectation among European resellers that 3Com's sales may pick up over the remainder of the year.

Looking further ahead, however, there was widespread hope that revenues in general would recover in the second half of next year.

Global Touch's Q3 2002 Channel Tracker report includes data obtained from channel partners (i.e. distributors, systems integrators, VARs, resellers, and networking-focused service providers) in the US and Europe with combined revenues of more than $95.36 billion.

The data for the Networking Equipment edition of the Channel Tracker report was collected from participants during the last two weeks in September 2002, and focuses on sales in the third calendar quarter (July 1 to September 30, 2002).

A summary of the report can be found here, and the full report can be downloaded form Global Touch's Web site here (registration required). ®

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