Circana’s Mike Crosby sees several reasons for optimism when it comes to B2B spending now through the end of 2026.

Below is a transcript of the above video.

Jennifer Follett, vice president of U.S. content and executive editor, CRN: I am here with Mike Crosby of Circana. Mike, thank you so much for joining me.

Mike Crosby, executive director, Circana: Hi, Jen, how are you?

Follett: This is exciting because we’re going to be talking a little bit today about the forecast, which everyone wants to know, predict the future. We’re going be looking at ’24 all the way through 2026, so give me some of the highlights of this research that you’ve done and what you’re looking at.

Crosby: Part of what we’re going to talk about today, it’s based on our Future of B2B Tech. It’s an algorithm that we utilize pretty extensively. We refresh it twice a year, and we just published this about a few weeks earlier, but it gives us visibility units, dollars, ASP (average selling price) by product category out through 2026. So we’ve just published it. And some of the high-level early findings that we’re seeing are that, as we’ve been predicting, the expectation is we’re to start to see some improvement beginning to build in the second half, and we’re going to spend a little bit more time today talking on that in greater detail.

Follett: That’s probably what people want to hear about most, so let’s get started. What are you seeing for the second half? I know we’ve been talking over the last few months about that it was expected to be a little stronger in the second half. Now we’re in that second half, how’s it looking?

Crosby: Yeah, the good news is I think we’re beginning to see, again, the early signs that our predictions are accurate, that we’re seeing some momentum building, and it’s built on really three things. It’s really kind of a convergence of three tailwinds.

The first one is really around economic conditions. One of the things that we watch very closely, obviously, is inflation, unemployment and a number of other factors that get built into the algorithm. And while it’s still not where it needs to be, ultimately for the Fed at 2 percent, we did see a decrease in interest rates certainly. So we saw that dip slightly below 3 percent and the expectation is again the Fed’s trying to get to a 2 percent, but one of the things that we saw at the same time was we saw inflation drop just a little bit. We also saw unemployment uptick just a little as well a little bit earlier. It’s running about 4.1 percent now, and that’s a little bit higher than where they had planned. Now while this on the surface doesn’t appear to be great news, it is economically because the Fed is really looking for some key indicators as to when they can start to move on interest rates. And one of these things was tied to that. Inflation is still trending downward and unemployment uptick. And so likely now we believe that there’s going to be at least a quarter-point move, probably in September, potentially even one more in Q4. And that’s good for a whole lot of reasons.

So one is the economic conditions are better, the inflation rate, but also that interest rate cut that we’re anticipating is going to be beneficial. And again, why that’s important for B2B, not only interest rates in a general sense but also lowering the cost of capital, that’s really critical around midsize and enterprise business looking to invest and refresh their devices heading into this year and then heading into next year. So it lowers that cost, gets a better return overall, which is also strong.

Then the third thing is that we’ve already talked about for a while is Windows 10 sunsetting. We’ve seen, again, we’ve talked about this for a while, but again, keep in mind there’s still about 70 percent or so of the install base that’s still operating legacy OSes. And so those really need to start to accelerate on that migration over. And regardless of where interest rates are, typically the larger the business, the longer the runway is needed to manage that transition.

So we’re starting to fall within those timeframes now. So regardless of if we don’t get the interest rate cut, larger businesses have already started. And we’ve started to see enterprise and midsize start to move in accelerating some of those things.

And the last part of it, again, that I’ll wrap all of this together is, as we know the peak that we saw in 2020 and ’21, for the most part Chrome and Windows, or ’22 for Mac, those have all now started to near that end-of-life period, roughly about a four-year refresh. And so we’ve already started to see those early signs. And again, mostly leading right now with enterprise and midsize. We are seeing small business tend to lag a little bit. It’s still comping down year over year.

One of the things that we’re concerned about a little bit with small business is they rely very heavily on regional banks, and regional banks are still at this position a little bit over-invested in commercial real estate. And with the challenges that we’re seeing with hybrid work and vacancy rates around some of the properties, some of these loans are underwater that may ultimately restrict their ability to lend dollars. So we think there still may be some challenges with small business heading into the second half and likely to start to improve in 2025.

Now the good news is small businesses move fairly quickly. They’re pretty agile. They can move and respond to conditions as they change. But that’s what I would suggest are probably the big things that we’re watching. And again, we feel like these converging tailwinds are really going to be helpful as we start to round the corner in the second half.

Follett: Another potential big factor, at least here in the United States, would be the election coming this November. What impact do you expect to see from that?

Crosby: Yeah, it’s interesting because if you look at previous elections, typically if there’s an incumbent and if things are doing reasonably well, usually we see a little bit of a benefit. We usually see prices come down a little bit more, and there’s kind of a benefit heading into the election. The challenge with I think where we see it today is there’s just pretty significant opposing views relative to policy, and some of them could be seen as extremes on both sides. And the challenge with that is it may ultimately impact some of these businesses in the way that they’re looking to invest, and it may require maybe a need to step back and pause a little bit just to understand the different dynamics. Will tariffs be more involved? Will they be less involved? Will tax benefits be more involved, less involved? So there’s some of those things.

A lot of people would suggest a lot of uncertainty, and it may drive a few to pause a little bit, and that would be the only kind of wrinkle in this second-half recovery is depending on how optimistic or pessimistic some of these businesses are in spending between now and the end of the year.

Follett: Let’s circle back a little bit to the Windows 10 sunsetting. We’re still over a year away from when the end of support is scheduled. That’s supposed to be fall of 2025, October 2025. Seventy to 75 percent of the businesses still haven’t made the move. When are they going to get going, do you think?

Crosby: Yeah, and that’s where I think it’s going to be really, really critical. And as I suggested, it’s starting now. And that’s why we’re seeing it already early with the larger businesses, because as I was suggesting, typically the larger businesses need nine to 12 months of a period of time to really manage that transition efficiently and effectively without causing any challenge to the business operating day to day.

Now, as the companies are a little bit smaller, they need less of a window. But that’s why you’re already seeing larger businesses already begin to make these moves and to not only upgrade the devices, because in many cases these devices aren’t hardware-compatible with [Windows] 11, but also in managing through that process. So that’s why we were suggesting while large businesses are hopeful because of the amount of dollars in spend, that as they get lower cost to capital that’s going to be a good thing, but they also are reaching a point that they can’t wait. So regardless whether we see the interest rate improve or not, you’re going to see certainly larger, more enterprise and midsize businesses likely have to just get going because to your point, we’re going to run out of runway if we’re not careful and that can create all kinds of other kind of unplanned consequences to that, either additional extensions where there’s additional cost, any incompatibility, lack of testing, so it brings risk, and I think that’s what these businesses are really trying to avoid is any risk.

Follett: What are you hearing from partners or what’s the general expectation as to what percentage of customers just won’t move anyway?

Crosby: For the most part again on the larger side, I think we’re seeing it still midsize and enterprise, partners seem very, I think, optimistic. There’s a lot of activity, and there’s been a lot of effort on the part of both distribution, large VAR/DMR, to do an education and a push that was going out and talking about what the whole value proposition is of migrating, how you want to do it in a planful way. So I think they’ve been really working and trying to be very proactive in educating larger customers relative to the value of it and what are some of the risks or challenges if you don’t.

I think you’re going to still see the lag typically on the smaller businesses as we see it. Normally, again, they don’t typically refresh at the same rate that larger businesses do, nor do they migrate over on the OS, but it’s going to come down to security and support because a big part of Windows 11 certainly is the ability to protect their business, their data and access. And I think those are going to be critical things that, you know, one way or another, they’re going to need to make those decisions to move forward.

Follett: Primarily, we’re going to talk about the forward-looking forecast, but we are now in the second half, first half is in the book. So what did we see there? Did we get what we expected?

Crosby: You know what? We did. We actually came in reasonably well. We’re still flat. But again, what we’re starting to see is we’re seeing growth around PCs, around some core areas, which is good news, because that’s what we had suggested, that it wasn’t going to come first of the year. But we do believe we’re going to see, again, reasonable growth as we climb out.

If you look at 2024 for the whole year now, we’re going to see this acceleration in the back half across all categories, not just PCs. We’re seeing about a 5 percent gain year over year. But if you look at devices specifically around computers, we’re suggesting about a 7 percent gain.

Similarly, we’re going to see a little bit of an acceleration as we move into 2025 because that’s where we believe the bulk of these refresh devices are going to occur. It’s also where you’ve got now, I think, a broader assortment in AI PCs, more competition. I think you’re likely to see maybe more aggressive pricing, and you’re going to see that become more of a factor as we move into 2025. So we’re suggesting, again, 2024 overall all categories plus five, computers plus seven. For 2025, we’re saying plus eight, so we’re going to see a little bit more acceleration in 2025. Computers up to plus 12, so we’re going to be a double-digit growth. And then 2026, we’re going to start to see it normalize. So look about an 8 percent gain in 2026 and about 6 percent gain in computers. So we’re going to see that kind of wave that we’re anticipating again based on the peak volumes that we saw in ’20 and ’21 and with Mac in 2022.

Follett: So specific to 2025 and that 12 percent growth you’re expecting to see in the computer piece, where in the year is that going to really be at its peak?

Crosby: It’s going to be a little bit more balanced. I think you’re not going to see such concentration in the second half. It’s going to be a little bit more balanced first and second half. Still probably a little bit stronger in the second half, but think about it a little bit more linear, a little bit more balanced, because I think we’re going to be in in a position Economically, we believe the end of 2025, we’re likely to be at that 2 percent Fed target. So we’re going to still see inflation continue to come down. There’s likely to be three, four additional cuts that are going to occur, maybe even as soon as the first half in 2025.

And again, those are all stimulants that are going to get this going. We’re also going to have a new administration in place one way or another, and we’ll have a little bit more certainty about where things are. So yeah, look for a little bit more balance in 2025, not so much hockey sticked around the second half of the year like in ’24. Think about it a little bit more balanced in ’25 and likely similar again in ’26. We’re just going to start to crest and begin to normalize a little bit back down to what would be kind of a normal growth trajectory.

We are seeing a couple things that’s interesting. We are seeing on the Chrome side, Chromebooks are starting to show a little bit of a balance on a recovery, but we still think Chrome is still going to fall significantly short relative to the 2021 kind of numbers that were there. Part of it is we’re just seeing different changes going on academically. We’re seeing a little bit more concentration on Chromebook for K-8 [in the education market] and anything above, 9-12, we’re seeing a little bit of churn there where it’s migrating a little bit more so to Windows.

We also saw last year with Apple specifically some pretty significant changes relative to volume, but looks like a lot of that is already starting to see recovery and seeing those ASPs driving more of the high end.

So 2023 was kind of a weird year. We had a lot of different changes that were going on and a lot of pullback on devices, and ’24 is really starting to find that—I don’t want to call it a recovery, but starting to see that business begin to come back to expansion. And then we’re to start to ride this wave a little bit on the refresh. So mix is going to be important, but I do think there’s going to be some subtleties around change on that that we’re going to need to pay attention to.

Follett: Maybe we can focus a little more on the AI PC piece specifically. That’s expected to be one of the big pieces that will drive growth as more and more customers migrate to these new systems. What are we seeing right now, and when will that start to pick up?

Crosby: Yeah, it’s interesting. And we’ve put together, I think, a pretty extensive methodology around how do we track it because we’re also not only looking at NPU (neural processing unit) and top scores, which you’ll hear a lot of the references around 40 TOPS (trillions of operations per second) and the NPU that’s being added to the overall mix, but also we’re looking at GPU and GPU performance that’s also contributing in that. So we factor all that into our data. And one of the things that we’ve seen early, mainly because the assortment is fairly limited right now on the 40-plus TOPS, you’re seeing most of the qualified AI PCs within those parameters we’ve defined qualifying because of the GPU performance, not necessarily the volume that’s in the NPU.

Again, all that stated, it’s still very, very new on the NPU with 40 TOPS and above, and you’re going to see more emerging products, more emerging chips and technology later on in the year and this year that will now add some additional competition and likely downward pressure on pricing a little bit, because today you’re certainly paying premium on the AI mix as it goes.

You’re also seeing a lot of businesses today take a little bit more planful approach to AI and trying to understand, and making sure that they can validate three things. One is, is it worth the dollars? So as they’re deploying these piloted programs, are they able to see the return on investment for that added cost of the device? They’re also looking to make sure that there’s not any hidden incompatibilities they’re not aware of because they know it’s new and so they’re really trying to leverage that. And the third thing is they’re trying to understand and measure the talent that they have organizationally and do they have the skill set and knowledge and understanding to maximize these devices that are deployed.

So those are really key drivers right now on these pilots and it’s reflected. We’re seeing and hearing from the channel there’s a lot of [evaluations] being placed. There’s a lot of testing that’s going on right now on devices. But if you look at the overall performance of the mix, 2024 year to date, only about 1 percent of the mix today is considered within that AI PC parameter, 99 [percent] that are outside that parameter. And we believe, again, it’s still in the early phase, but we would consider kind of the innovation phase of tech adoption. And that typically runs, you know, one to three percent. But as we lean into 2025, that’s where you’re going to see this become a little bit more mainstream. And you’re going to see that mix begin to spin up, I think, much more aggressively relative to what is an AI PC and what is not. And you’re going to see that continued acceleration as we get into ’26. So really from that standpoint, I guess the big takeaway would be it’s still early, innovator, early adopter kind of phasing on where we are. But as these tests come back and the validation is coming back from larger companies that are piloting these, I think that’s where you’re going to start to see that really begin to accelerate leaning into 2025.

Follett: How strong of a role do you expect the channel partners to play in these AI PC rollouts, these pilot programs, kind of convincing and helping these customers find where the AI PCs will really be of use?

Crosby: I’m glad you brought that up because one of the things that I’ve spoken to a number of partners about is something called a readiness assessment in looking at what do we need? What are we trying to accomplish? And it’s really getting clients and customers to really understand that at a most basic level. And does our environment support the investment of these devices or do we have challenges? Do we not have network capability where it needs to be? It’s going to be more data, more bandwidth. Are we going to need and do we have appropriate infrastructure?

So one, the role the channel is playing is that more advisory role relative to are you ready for AI and have you done the things that are required to able to maximize the value of AI. And if not, they’re also in a great position to identify where there’s gaps in technology for incremental sales that could be contributed to that. So if networking isn’t where it needs to be, if security isn’t where it needs to be, if the devices certainly are not, it’s a nice value-add that the channel clearly brings in knowledge and understanding, but also being able to give them a fresh set of eyes relative to the evaluation and say, hey, you’re ready or you’re not ready and here are the things that you really need to look to invest in to make sure that you can maximize the opportunity.

So I think as the channel does on regular basis, right, they find ways to add value in those things and not only in the transaction of the hardware and the technology, but also the advisory and the services and all the things that go with it. So I think it’s tailor-made for really what the channel brings.

Follett: You touched a little bit earlier on this idea of increased competition among the chipmakers. What are you expecting there?

Crosby: It’s really fairly isolated to one today that’s now in production and actually has product in the market at that 40 TOPS performance for the NPU. Very soon you’re going to see at least two more, maybe even a third that will be coming out with 40 TOPS-plus product and more expanded capability.

So one of the things that we’re seeing is we’re going to see a compressed cycle that’s going to be going on, especially this little bit of chip wars, right, where we’ve some first-to-market folks that are bringing products to market, but then you’ve got a lot of fast followers-slash-innovators that are looking to enhance that and to beat that. And while that’s a challenge when you’re in that, we’re going to see likely a little bit of churn and very aggressive activity that’s going on. It’s ultimately going to benefit the B2B customer where they’re going to see fantastic technology, first-to-market technology, and likely more aggressive pricing, again, as the competition heats up a little bit. So I think, that can be a challenge for the OEM to be able to maximize that, I think you’re going to see that ultimately be a benefit for all businesses that are looking to invest, that are looking to get the latest and greatest technology, but ultimately finding it at an attractive price point.

Follett: That’s Qualcomm being the one that’s currently in the market and then Intel and AMD coming on strong.

Crosby: Yes. You’ve got Intel and AMD, and then you’ve also got, you’ve still got also with Apple. It’s still kind of in the wings with their discussions around what that next rev will be as they announce their strategy that was just at the Worldwide Developer Conference. You’re going to see a lot of competition, and I think that competition is good. It’s difficult, but I think it can also bear some significant value for the folks that are looking to invest in the technology.

So AI, it’s an exciting time. It’s an exciting opportunity. It’s still very early, but I would say you’re going to see momentum continue to build and continue to accelerate as end users and customers, businesses, have a better understanding, again, on how to take advantage of the capability and the use cases as they continue to evolve. You’re just going to see that accelerate even more. So I think it’s going to be a great ride. And I think it’s going to be a great opportunity to see a nice bounce for the channel. I think you’re going to see nice gains across the board, not only hardware, but also in software and services.

Follett: Let’s touch a bit, if we can, on the security space and what you’re expecting to see there through 2026. And of course, we are just coming off of a massive global IT disruption that came about from CrowdStrike disrupting Windows machines across the globe. What are people thinking now about security? What kind of impact does that sort of large-scale outage have on buying decisions?

Crosby: I think unfortunately, the impact of that certainly was enlightening and was eye-opening over where are there vulnerabilities and maybe being a little less aware of what some of those are. And I think it really will do nothing but reinforce how critical security is, not only today, but even more so as we lean into the future. But I think you’re going to see people look at it a little bit more multi-dimensionally and understand where the different maybe gaps are as far as their exposure and maybe try to build in some additional reinforcement and protections to alleviate as much as they can the downside risk of this. I think, again, while it was unfortunate, I think the visibility of it reinforces, again, just how critical security is. And because of just the vast amounts of data that’s being utilized and being generated, this has to be top of mind and it will continue to be.

We’re still seeing security continue very, very well in the overall mix. Right now, software, if you look at collectively, we’re still about a between a six or eight percent gain year over year and then you’re looking at cloud specifically still up about 18 percent. So if you look at on the three big buckets between IT hardware, between software and between cloud, the only one that right now is a little bit underperforming is IT hardware but again as we see acceleration on the computer side, on the device side, that’s likely to balance out because we’re already firing in a reasonable way with the other areas. And again, security is critical to that and it’s a major part of what that is within software.

Follett: Well, I think that we have touched on a few things that show a lot of potential reason for optimism for the channel and really hoping things will start to open up in 2024 and then clearly get going really well in 2025.

Crosby: Again, we’re cautiously optimistic, but I think this is just the beginning stages of where we’re going to start to see some light at the end of the tunnel. So I think it’s all good stuff and all things that we’re very excited to share and talk about.

Follett: That’s what we like to hear. Thanks, Mike, really appreciate your time today.

Crosby: Great. Thank you. Talk to you soon.

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