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Drop in Confidence Causing Server, Storage Sales to Plummet

The war in Ukraine, high living costs, and surging interest rates have impacted distributor revenues from sales of enterprise servers and storage.

This story originally appeared on Channel Futures.

A lack of investment saw distributor sales of enterprise servers and storage plummet in the second quarter. Moreover, revenue growth will continue to suffer into 2024.

So says IT market intelligence company Context, whose Q3 2023 channel forecast report reveals that server sales revenue slipped from a growth of more than 37% year-on-year (YoY) in the fourth quarter of 2022 to a YoY increase of less than 4% in the first quarter of 2023. Revenue then fell by nearly 12% YoY in the second quarter.

The firm said the war in Ukraine, high living costs and surging interest rates that increase the cost of capital have led to business confidence sinking. This isn't just happening in the EU but in China and the U.S. as well. This has led to a significant impact on distributor revenue from sales of enterprise servers and storage.

Growth in distributor revenues from storage sales tumbled from a little more than 17% in the first quarter of this year to −9.5% in the second. Both of these second-quarter figures are significantly lower than Context forecasts. In even the most pessimistic scenario, it anticipated YoY growth of 1.6% for servers and 4.5% for storage.

Following this trend, it seems like Context's gloomy forecasts for the third quarter are likely to be more accurate.

These prognostications anticipate a further slump in sales leading to another quarter of declining growth. The researchers at Context expect server revenues to be down nearly 29% compared to 2022. Those from storage sales might be close to 15% lower. The latest predictions for revenue growth over the year as a whole now stand at between -18.4% and −13% for enterprise servers, and between −5.6% and −0.8% for storage.

Drag on Business Demand for Servers and Storage

Context did say that as the economic outlook brightens, it was "hopeful that performance across both markets will begin to improve by the start of 2024."

Even so, macroeconomic uncertainty is likely to remain a drag on business demand for servers and storage for the rest of this year. Unflattering comparatives from 2022, when the clearing of backlogs pushed up revenues, will also make growth this year difficult.

The report added that shortages of AI-ready components, even as overall supply normalizes, is another potential problem. However, product refresh cycles, a ramping up of corporate digitalization plans, and sustainability initiatives "could make for a more positive 2024."

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