Tech vendors don’t want to admit it but CIOs will need to return to their spending plan spreadsheets: hardware is going to get more expensive post-Brexit as sterling slides against the US dollar.
The UK currency fell 12 per cent on 24 June when the outcome of the EU referendum emerged, and this week the pound plunged to a 31 year low against the dollar, to $1.3342.
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The rate at which price rises are seen will be staggered depending on the way a tech vendor operates. Cisco, for example, sells its kit in dollars, meaning that local resellers and wholesalers who buy directly from the networking giant need to carefully hedge currency.
“Cisco prices started to go up immediately on Friday [24 June],” said one channel source.
Many vendors buy components in US dollars and will be under pressure to ensure margins are not hit when they sell to UK consumers or businesses. Those that run special bid pricing do so in dollars.
Commodity IT makers tend to have monthly price checks, and multiple sources told us to expect increases of between five to ten per cent in areas including PCs and volume servers, to materialise next week.
“Vendors may over react to the currency movement,” said one. “We’ve got the feeling we might see an over-balancing due to fears the pound will continue to fall.”
Prices for enterprise tech – the more project-based stuff including storage – will not rise as such, sources reckoned, but the level of discounts offered to customers will be clipped.
An appreciating dollar against the pound and the Euro isn’t a new challenge – it showed up in a big way last year and caused prices to fluctuate, but not at the wild rate seen since Brexit. We asked vendors to comment on price rises, and most either answered the questions they wanted us to ask or refused to comment. Dell was the most open:
“In line with the rest of the industry, our component costs are priced in US dollars. The recent strengthening of the US Dollar versus the Euro and other currencies in the EMEA region, following the UK’s decision to leave the European Union, will have a direct impact on the price we sell to our EMEA customers and partners.”
Alastair Edwards, chief analyst at Canalys, said customers will continue to buy tech, but asked “how much will the price increases rebalance the loss of business that comes from the uncertainty in the market”.
He said consumer spending may be hit - not solely due to price hike, with economic and political uncertainty also at play - and expected some verticals including construction, financial services, manufacturing and the public sector to be impacted to some degree.
“Construction, for example, is heavily dependent on funding from investment banks, and banks will be turning off the taps,” he said.
The media gatekeepers at Fujitsu told us they were not commenting on specific questions around Brexit, but presented us a canned paragraph:
“Now that the people of the United Kingdom have voted in favour of the UK leaving the EU, we want to reiterate Fujitsu’s commitment to the UK, our UK customers and our UK employees.”
Similarly, Hewlett Packard Enterprise's PR reps said it was unable to comment on pricing but sent us some words, maybe just for the hell of it:
“Our focus is on our clients, partners and employees and continuing business as usual. As a leader in the technology sector, we're used to transformation and change and will work closely with all our stakeholders over the coming months as and when the terms of the exit become clear.”
IBM also refused to talk pricing but told us it has “proudly been a part of the British economy and society for over a century, with a substantial presence. In times of uncertainty, IBM's core values, including the unwavering dedication to the success of all our clients, matter more than ever as a guide for our actions.”
The good folk at HP Inc refused to comment on prices, as did Juniper. Lenovo and EMC had all week to line up their response, but neither were unable to find the right words.
Experts this week warned the weakening of Sterling will continue throughout this year, with Scotiabank indicating the pound could reach parity with the dollar by the end of December or the start of 2017.
“We think investors should be prepared for the risk of the weakness extending quite significantly in the next few months while uncertainty surrounding how the UK moves forward persists,” said Shaun Osborne, chief currency strategist. ®