IT Supply Chain Developments and Their Impact on Buying Decisions

We are pleased to bring you Al Nagar's (Head of Benchmarking, KnowledgeBus,  Mercato Solutions) end of February advisory post sharing recent movements and impactors within key IT product categories, to keep you abreast of the latest developments to support your purchasing decisions.  

With less than 100 days to go until the general election, investing in technology remains high on the political agenda for UK business. For government bodies in particular, the adoption of technology remains particularly significant as public sector organisations continue their journey to digital transformation in an effort to improve the delivery of public services.

Fluctuating exchange rates, overseas delivery and new technologies all remain key as procurement leaders look to navigate best value for IT in a largely volatile market.

Exchange rates – special note

Rallying Dollar Set To Add Up To 10 Percent to Price of ICT

The pound’s 17 month low against the dollar prompted manufacturers to forecast significant price rises of up to 10 percent from the beginning of February and this may hit some IT budgets hard.

Exchange rates play a pivotal role in fuelling volatility of price in the three-tiered, global IT supply chain.  In the UK, although IT products are purchased in local currency, they are first traded on a worldwide level in US dollars.

Sterling has dropped against the dollar from its 2014 close of 1.5587 to below 1.52 currently, which includes a 2.6 percent drop in just two days.  The dollar continues to rally, boosted by the Euro's weakness.

Due to these significant adverse movements outside of manufacturers’ control, brands like HP, Dell and Lenovo have warned reviews across the board will see UK price increases of up to 10 percent in February.  For companies buying in Euros the impact could be much higher.

IT brands have been releasing price warnings into the channel during late January.  That in itself is nothing new, but it is the size of the increase that is being dictated by exchange rate movements that makes it significant.

Having plotted IT supply chain data over the past few months, it is clear to see the price rise trend already coming into effect.  In some cases it is turning product lifecycles upside down, seeing the usual price declines over time actually increase for a period.

In October, the average price of a popular Lenovo desktop was £352, it then went down to £336 and stock fell to zero in November and December 2014. New stock of the same product entered the UK IT supply chain on 12th January 2015 priced at £437.  These widespread rises will clearly impact budgets and some may choose to put large-scale refresh cycles on hold.

One senior corporate IT buyer, said: “This always happens when the exchange rate becomes unfavourable. I have been trying to negotiate better prices for HDDs and have hit a brick wall due to the US dollar exchange rate.”

Phones and tablets

The demand for smartphones continued to grow in the fourth quarter with vendors shipping a record 375.2 million units – up 28 percent on last year. This follows strong yearly sales, with the smartphone industry shipping 1.3 billion units during 2014, up nearly 30 percent  from 2013.

It was a month of ups and downs for Apple. The launch of its iPhone 6 product line towards the end of last year reached a seemingly impressive total of 75.4 million units during Q4., This growth was still slower than 2013 though which experienced a 40.5 percent growth in unit shipments over 2012. However, strong iPad sales – a 4.5 percent increase during Q4 – resulted in record financial figures as the company enjoyed its most profitable quarter ever.

Apple’s lack of year-on-year growth in the smartphone market can be explained by a maturity in the market, which sees less of us buy our first ever smartphone device. Rather, we’re seeing a rise in replacement purchases, as the smartphone becomes less of a novelty and more of an essential commodity.

Premium Ultramobiles

IHS announced that wearable devices would grow by a huge 3,000 percent in 2014. There continues to be a lot of noise around wearable technology as we progress into 2015, with Samsung’s Galaxy Gear and Apple’s iWatch all major contenders. Whether or not these devices will be viable for business purposes remains to be seen as procurement leaders weigh up the benefits of becoming early adopters.

For specific sectors it’s unlikely that the majority of these technologies will deliver sufficient return on investment. Traditional office-based environments may look to invest in one or two models as ‘showroom’ pieces but it’s unlikely to go much further than this. However, the high-tech mobility and tracking features, along with the ability to access data hands-free, may well prove useful for those in the emergency services, for logistics businesses and those working remotely for example.

Traditional PCs

PC shipments reached 25.5 million units in Q4, representing a 2 percent increase year-on-year according to IDC. This was largely facilitated by a 10.7 percent rise in shipments across Western Europe and was largely driven by consumer sales.

Lastly, the introduction of Windows 8.1 with Bing Edition made a real impact. Total notebook shipments reached 175.5 million worldwide during the last three months of 2014, representing a 3.6 percent increase year-on-year according to TrendForce.

On the whole, it was a relatively positive January with Q4 periods often buoyant thanks to healthy holiday demand.

 

Stat of the month: The largest number of price increases happened on January 7, with 19,400 rises in a single day.

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