Holy margins, Batman: Pandemic tech prices balloon as demand outweighs stocks and suppliers get greedy

Hall of Shame as IT buyers admit to paying £110 for a £14 mouse and keyboard

Whether it was price gouging or the laws of supply and demand playing out - or both - the average margin paid to IT suppliers during the pandemic were five times higher than in the months before it.

Analysis of £4.7m worth of business spending on hardware was undertaken by tech services outfit Probrand from November 2019 to mid-March 2020 - prior to Britain's first lockdown - and then for the rest of the year.

The data was gathered as part of a benchmarking service and in prospecting companies. End user firms that agreed to partake listed 50 purchased line items on a spreadsheet, including the OEM part number, a general description, the quantity and price paid. These products were bought from a variety of suppliers. This was then compared with the live historic vendor and distributor trade prices.

Probrand says it found the UK businesses operating in 14 different sectors coughed a mean margin of 9.4 per cent in the months before lockdown.

After lockdown, the mean average margin had risen to 50.84 per cent, the research indicates. Procurement nirvana, as advised by the Society of IT Managers, is reached when buyers pay no higher than a 3 per cent margin over the trade price of a product.

"COVID-19 completely changed the landscape last year," said Ian Nethercot, MCIPS supply chain director at Probrand. The company said 70 per cent of IT products faced constraint in the channel.

China, the World's Factory, closed the doors to many production facilities in January last year and disrupted the entire supply chain. Subsequent lockdowns across parts of the globe saw businesses race to kit out their employees, and student bought tech to study at home.

Nethercott added:

We witnessed both a huge spike in demand and a significant contraction in supply – due to factories closing in Asia and planes being grounded. There is no doubt that this extreme supply and demand scenario resulted in panic buying, with people prepared to buy whatever they could get their hands on at whatever price in order to equip staff working from home.

Demand for certain technologies shot up. Vendors simply couldn't make enough notebooks, webcams, consumer printers and ink, displays, and other peripheral devices.

Among the most extreme examples of margin mugging, according to Probrand, was a Kingston Technology MicroSD card that was bought at a trade price of £2.37 and sold to client in the construction industy for £15.70; a Logitech wireless combo MK270 mouse and keyboard that cost the supplier £13.71 and the central government customer £110; and an Epson label cartridge, LK-6SBE that fetched £183.30 from a certain retailer but had a trade price of just £14.95.

"Undoubtedly some suppliers took advantage of this panic and inflated their margins," claimed Nethercot.

Chancers will continue to be chancers, whether that's during a pandemic or not.

  • No, you're not imagining the tech drought: Lenovo PC stocks one third of normal amid pandemic demand
  • Never mind COVID-fuelled demand, supply side is feeling the pinch

    As revealed by The Reg last year, tech distributors cleared their shelves of all notebooks during the buying frenzy – even ones gathering dust for the previous 12 months were snapped up.

    The global PC market reached highs not seen since 2012 and all evidence is that it hasn't slowed. Lenovo admitted earlier this year it just can't make enough laptops, and channel inventory was running at two to three weeks versus the typical six weeks' worth of stock.

    "I think when I look around the world… from US to Europe to China to Asia-Pacific, I think our channel inventory has never been so low and in some cases during the last quarter we were down to two to three weeks," said Lenovo COO Gianfranco Lanci in February.

    Lenovo and other its rivals simply can't source enough components - mostly ICs and panels for notebooks/ displays. And chip shortages are predicted by Gartner to continue this year and next in the face of high demand.

    Gartner said:

    The chip shortage started primarily with devices, such as power management, display devices and microcontrollers, fabricated on legacy nodes at eight-inch foundry fabs, which have a limited supply. The shortage has now extended to other devices, and there are capacity constraints and shortages for substrates, wire bonding, passives, materials, and testing, all of which are parts of the supply chain beyond chip fabs. These are highly commoditized industries with minimal flexibility and capacity to invest aggressively on a short notice.

    Yesterday, Cisco confirmed it was raising prices on certain products to pass on increases in component costs to customers, saying it had seen a 10 per cent spike in orders in its most recent full quarter, something not witnessed for almost a decade. Devices are also set to rise in price, according to one of the biggest resellers around.

    It seems the supply chain won't be returning to normal anytime soon, a bit like life in general. ®

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