By Paul Kunert
18 July 2008
Insolvencies
and administrations in the UK channel are at a four-year high, but the
real test for local IT suppliers will be whether they can survive what
is predicted to be a tougher second half of 2008.
According to
figures by credit reference agency Graydon – which monitors about 8% of
companies in our industry – almost as many companies collapsed in the
first half of the year as went under in the whole of 2007.
“It
has been a very tough start to the year as the market has been
relatively flat,” said Graydon’s head of intelligence Mark Ancell.
“The
number of insolvencies has gone up, as have the number of insurance
claims and the number of debts being collected by third parties for
recovery.”
From January to June, 130 firms were liquidated or
went into administration, compared with 167 in the whole of 2008. The
last time figures approached this level was in 2004, when 145
businesses went under in the first six months.
The market is
undoubtedly tough, but anecdotally the value of the company closures
has fallen year-on-year, said Ancell, noting that in 2007 distributors
lost money on the high-profile closures of Watford Electronics and
Evesham.
Despite this, the current quarter is critical because it
is typically the leanest of the year and could crank up the pressure on
resellers that are already close to the brink.
“Many will
struggle to keep the business afloat and for some the only option will
be administration. But they need to keep the lines of communication
open with distributors, not stick their heads in the sand when problems
appear,” Ancell warned.
A BDO Stoy Hayward LLP survey
indicated business failures were set to rise 18% by 2009, but the level
of collapses in the technology, media and telecoms (TMT) sector, would
remain relatively flat.
The “consumer spending tap” is about
to be switched off, said Shay Bannon, business restructuring partner at
BDO, but in the commercial space user businesses were gearing up for
difficult times by investing in IT.
“They are trying to gain a
competitive advantage and reduce costs because it is the age old
argument that machines are cheaper than people,” he said.
However
Bannon argued the reseller channel is more volatile than most firms in
TMT and it is factoring in a higher number of administration or
liquidations in the supply chain.
In other research BDO has
said UK business confidence has reached a 16 year-low due the deepening
impact of the credit crunch and rising food and utility bills.
The
economic uncertainty kick-started by the crisis in the banking sector
has indeed infected other markets, most notably retail and corporate
enterprise and the malaise could spread further before the year is out.
The situation is summed up by Graeme Watt, president of
worldwide distribution at Bell Micro: “It will be a tough market and a
time when having a vigilant and highly experienced credit team comes
into its own.”
