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CANALYS CHANNELS FORUM | The technology industry is booming

HONG KONG — Despite the China-U.S. trade war and other economic issues, the technology industry in Asia Pacific is booming, and it’s benefiting companies in the business of distributing technology products and services. 

“Technology is booming; you all have had a tremendously good year,” Steve Brazier, CEO of Canalys, a technology market analyst firm, told attendees of the company’s annual Asia Pacific Channels Forum held in Hong Kong recently. In his keynote address, Brazier also told delegates—mostly made up of technology distributors and resellers—that the biggest surprise of all is that the PC industry is doing really well. 

“Remember all that talk four or five years ago that the PC was dead? That it was going to be replaced by smartphones and tablets? It hasn’t happened. [The PC industry] has experienced its strongest growth in five years, at least. And, more importantly, the prices are going up, and the range of segmentation of product lines have gone up. As prices have gone up, the PC companies are making more money, and the channel is making more money. [2018] has been a great year for the PC industry. And the Windows 10 refresh has been part of that.”

Brazier noted that across APAC (excluding China), distributors have been growing 8%, mainly due to a shift to volume PC products. Other factors behind the growth of distributors are Internet of Things (IoT), public cloud, adoption of security standards, smartphones, and smart homes.

Meanwhile, partners are doing better, registering 10% growth mainly because of security implementations, Windows 10 refresh programs, digital privacy, IoT, Office 365 implementations, infrastructure, analytics, and digital transformation. 

However, the biggest success of the tech industry in 2018 were smart speakers, led by Amazon, Apple, and Google, according to Brazier. A smart speaker is an Internet-enabled speaker that is controlled by spoken commands and capable of streaming audio content, relaying information, and communicating with other devices, such as a house’s lighting system.  “Today, you can walk into a room and say “turn on the lights.” It’s awesome,” said Brazier.

High-growth areas for channels

Brazier also listed the following technologies that would be “extremely high-growth” areas for channel businesses in the coming months: flash, wireless, hyper-converged, software-as-a-service, IOT and sensors, managed security, and public cloud. 

Other growth areas for channel businesses, according to Brazier, are e-sports, gaming PCs, and peripherals. 

Brazier also advised delegates to start experimenting with artificial intelligence. “Start a pilot project. Put one person on it. But it is going to be complicated. The key reason everyone is so excited about AI is its computer-intensive, it will drive consumption of cloud platforms.” 

Hybrid multi-cloud and the edge

Amid heightened security and political risks, channel businesses should advise their customers to not entrust all their IT assets to one company, especially in this era of the cloud, said Brazier. 

[They] need to spread [their] risk. If [they] go all-in on one cloud, nasty things might happen. The company might go bankrupt. The company might get hacked. They might have a catastrophic system failure. Or perhaps,   there might be a political event which means [the vendor] may not be willing to serve you in your country because they are blocked for regulatory reasons. There are many reasons why you don’t want your risk in one place.”

Brazier also pointed out that if data is primarily used locally, then the company must resort to edge computing—the practice of processing data near the edge of the network, where the data is being generated, instead of in a centralized data-processing warehouse. “You want to keep the data on the edge local because of performance issues.”

With the rise in the popularity of cloud computing, many companies have emerged. “The born-in-the cloud re-seller model is nonsense. It’s nonsense because it’s a multi-cloud world. You need edge computing, on-premise computing, and security. If you are only re-selling public cloud you can’t provide the customer the full experience.”

Brazier stressed that most of those born-in-the cloud companies are not making money. “That bubble will burst. We expect them to be acquired either by channel partners providing multi-cloud experience or the system integrators.”

The biggest challenge: skills

While the technology industry is in for another good year, the biggest challenge facing businesses today is lack of skills, according to Brazier.

“Doing security, doing software development, and doing cloud [implementations] are all complicated things which means you need clever computer scientists to help you, especially those with analytics and artificial intelligence skills. The salaries for people with these skills are going up. Your challenge is finding them and keeping hold of them,” said Brazier. “The need for skills has never been higher.”

Hype around cryptocurrencies and blockchain

Brazier also discussed the hype surrounding cryptocurrencies and blockchain. 

There’s one area of the industry that’s underperformed and that’s impacted AMD, and that is cryptocurrencies. Cryptocurrencies were driving the GPU market, and driving very high-performance computing for mining of these coins. Since July this year, almost all their activities stopped. The cryptocurrencies have collapsed. We doubt they will recover. It was a hype. It was a bubble.”

Brazier also remains skeptical about how important blockchain will be. “In a way, it’s a shared spreadsheet file. There’s a lot of hype. We doubt it will really change the world, the way people had hoped. Most experiments so far are not doing well.”

Tension between vendors and partners

Another issue Brazier talked about in his keynote was the growing tension between vendors and partners.

Brazier noted that while vendors stress they reward loyal partners, the channels partner are complaining that vendors are increasingly selling direct. “Maybe the vendors are not selling hardware direct; perhaps they are selling services direct. Vendors don’t have as much growth as partners have.”

Over the last 12 months, vendors have been launching tools and processes to improve the channel business. “That’s good. Automation is clearly a good thing. But they can’t automate their channel programmes and go-to-market models and then take people out. It’s still people who make the most difference.”

Vendors will also be telling partners to sell subscriptions, according to Brazier. “Vendors are going to tell you there are lots of customer demand for subscriptions. We don’t really think that’s the case.” 

There is a lot of excitement about selling subscriptions because shareholders love subscriptions, according to Brazier. “If you can transfer to a subscription model that means your share price has gone up. Microsoft is now the most valuable company in the world based on a very successful transition to subscriptions.”

Unfortunately, many customers don’t want subscriptions, said Brazier. “Vendors who go all-in on subscriptions are going to find themselves challenged. It’s really not what customers want.”

Brazier also explained that with the subscription model, vendors get the customer data. “You don’t really want the vendors to get your customer data,” Brazier told the delegates. “You know who your customers are. That’s your key criteria. You should be insisting you know exactly what the vendor is doing with your customer’s data.”

Effect of China-U.S. trade war

If there is one good thing that could happen as a result of the trade war between China and U.S., it would be their increasing investments across Asia, and attempting to win influence and businesses in the region’s countries, according to Jordan De Leon, a Senior Analyst at Canalys leading the Channels Analysis Asia Pacific service, 

“The biggest thing we expect from China regardless of how this trade war will end is for it to accelerate even further the production, and manufacturing of its own semi-conductors,” said De Leon. 

De Leon notes that China imports about $200 billion of semi-conductor equipment from the US. “We expect them to decrease their reliance on that, and expect them to increase their reliance on countries like South Korea, Japan and Taiwan.” In the last quarter of 2018, China increased its imports of semi-conductors from South Korea by 7.8%, noted De Leon. “In the future, we could very well have coming out of China an exact copy of the Intel processors.”

Because of the trade war, some countries are winning. “We are seeing manufacturing moving away from China,” said De Leon. “For example, a techtronics company is moving to Malaysia. And the company that assembles MacBooks is also moving away from China.”

De Leon said that when these companies move, and build new factories, they are not going to be old factories.

“They are going to be the most advanced factories in the world. They will be smart factories. So there will be a lot of investments in robotics, software, automation, security, IoT, and edge computing. These are real and exciting opportunities for many of you.”

A gobal supercomputer arms race

It’s not just the trade war and the politics of China and the US that will impact the technology industry, according to Brazier. 

“We also see a global supercomputer arms race. Particularly around three key subjects: Who has the biggest and best performing cloud? Who is going to be first to 5G, and who will be first to deliver exascale computing?”

Brazier predicts that China is likely to be first to deliver exascale computing, while South Korea will be first to 5G with China just behind. The US will be at least be one year behind in the race.

Brazier went on to say that the countries with the most advanced computing and power, are the ones that will win, which will have knock-on effects on areas like artificial intelligence.

More predictions

In his keynote, Brazier also made the following predictions:

  • By 2020, all Apple Macs will use Apple’s own SoCs
  • In the 4th quarter of 2018, AMD will achieve its highest share of PC sales for more than a decade
  • Alibaba Cloud will become the largest public cloud in Asia in 2019
  • By 2021, India will have overtaken the UK and France to become the fifth largest IT infrastructure market
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