IT Supply and Price Developments – Effect of Coronavirus, Windows 7 upgrades and NAND shortage

Ian Nethercot, MCIPS, Supply Chain Director at IT digital marketplace Probrand, updates us on IT supply chain movements to help with your buying decisions.

The impact of Coronavirus on the IT supply chain was big news in January – so much so, it made the month we left the European Union look smallfry. Some factory shutdowns in China are expected to continue past the mid-February date originally anticipated, with the ramifications likely to be felt for four or five months.

To help navigate the ups and downs and maintain a clear view of what represents a fair price, here are some of the latest developments and major movements that are influencing key IT product categories.

Coronavirus

We’re used to factories closing for Chinese New Year – these are scheduled events that happen each year and can be planned for. Of course, unplanned shutdowns are much harder to manage and the problem here is not knowing how long we can expect closures to continue.

The Chinese government had banned employees from returning to work until February 10th - but some businesses extended holidays or work-from-home arrangements, with delays and disruptions to the manufacturing process resulting in stock shortages.

Of course, when supplies dry up, the pattern is for prices to increase and we’ve already started seeing this happen within certain categories. One category that’s been hit hard is NAND flash, with the majority being manufactured in Wuhan which remains at a standstill. This is affecting anything with flash memory including display tech.

Also consider that, when factory workers eventually do return, they will be under a great deal of pressure to handle a huge back-log of orders. Equally, that you may not be able to buy products in volume, with many manufacturers putting big volume purchases on lockdown to dissuade buyers from swooping in and placing a massive order.

At present, there’s a real disconnect between the supply chain and buyers driven by a lack of communication. Make sure you’re asking suppliers questions and applying some pressure when it comes to checking on lead times and seeing if they’ve checked all the way up the supply chain.

Exchange rate

The euro started at 0.845 against the pound, rising sharply to 0.8525 on January 4th. It took a dip to 0.8485 by January 8th before recovering to a monthly high of 0.8562 nearly a week later. After a drop and a short rally to 0.8533 on January 20th, it plummeted to 0.8425 on January 24th and managed only a half-hearted recovery before ending the month at its lowest point, 0.8408.

There were fewer ups and downs for EUR-USD in January. In fact, the journey was mostly down. The euro never broke its starting value of 1.1209 on January 1st, suffering an inexorable decline punctuated by short rallies on January 6th (1.1182) and January 16th (1.1147). It hit a monthly low of 1.1007 on January 29th before limping to the finish line at 1.1051.

Traditional PCs

The Coronavirus outbreak impacted notebook product with ODMs reporting a 50%-70% utilisation rate.

Meanwhile, the worldwide market for traditional PCs (including laptops, notebooks, and workstations) enjoyed a 4.8% YoY growth in Q4, according to IDC. Global shipments hit almost 71.8m units, representing the highest single quarter shipment volume in four years. This helped propel overall global shipments 2.7% YoY, which was the first full year of growth in the PC market since 2011's 1.7% bump.

EMEA saw solid single-digit growth in spite of Intel's CPU supply woes. Why the spike in sales? Windows 7 upgrades boosted market fortunes as people rushed to switch to Windows 10 before Windows 7 end of support in January (Windows 10 needs newer generation CPUs).

Another contributing factor could have been a rush to ship laptops to the US in Q4 ahead of expected US tariffs that then failed to materialise in mid-December. This will lead to a weaker Q1, according to TrendForce. A compounding factor is the ongoing shortage in Intel chips, which will contribute to a 10%-15% drop in Q1 shipments.

Memory

Gartner charted a 31.5% decline in memory revenues during 2019. DRAM suffered from a 37.5% drop in sales due to an oversupply situation that lasted for the entire year, driven by a fall in demand from hyperscale data centres. Average selling prices for this technology dropped 47.4% in 2019.

Samsung forecast YOY Q4 profits falling at a milder rate than analysts predicted, indicating a bottoming-out of DRAM prices. Analysts are seeing inventories holding at lower levels, which could signal a rise in Q2 DRAM pricing. TrendForce adjusted its Q1 DRAM contract price forecast from ‘mostly holding steady’ to ‘slightly trending upward.’

NAND flash prices are likely to rise in the short term after a fire at a Kioxia flash foundry in early January. This coupled with the impact of Coronavirus means NAND flash is the one to watch in terms of availability and price.

TrendForce said we could expect a surge in demand for GDDR6 memory later in 2020, partly due to NVIDIA's new Ampere GPU architecture in the second half, and partly from the introduction of next-gen consoles from Microsoft and Sony for the holiday season.

Monthly statistics

The number of new products that came onto the market was pretty flat in January bar one large spike, with a high of 1,169 new products launching on January 30th.

There were a couple of big price increases in January with price increases breaking 35,000 twice on January 6th and 22nd respectively, occurring across a variety of product categories.

Prices down started at 37,817 before immediately dropping to 8,492. They broke 35,000 again straight afterwards for a three-day stint from January 3rd – 5th, again on January 8th, on January 23rd and one more time on January 28th.

 

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