Who are shortages good for? The channel! World's biggest distributor forecasts tech price hikes from January
Things not likely to improve until 2023
Canalys Forum 2021 Technology price rises are about as welcome Windows 11's needy hardware specs but one part of the industry is quietly happy about the inflationary conditions caused by industry-wide component shortages – the channel.
A raft of finished goods are costing more to produce in 2020 and this is being passed onto the end users, including PCs and networking gear.
At the Canalys Forum, an annual event for tech suppliers, Steve Brazier, CEO at the market researcher-cum-consultancy, was effervescent about the state of play.
"Prices going up is good for us, it's good for the channel, it's good for the vendors, it's good for the semiconductor industry, it's not good for the end user but for the rest of us it is fantastic news," he said in a panel discussion with vendors and distributors.
Typically, prices only go one way – a "race to the bottom" as Brazier put it – and it is the distributors who are stuck between a rock and a reseller, operating on low-single digit margins. Managing price puffiness is somewhat of an oddity.
Ralf Jordan, EMEA veep of distribution at Dell Technologies, said no vendor was immune to the current predicament – where, according to Gartner, demand for semiconductors is likely to outstrip supply until at least the middle of next year.
"We have seen, the entire industry, how vulnerable we all are based on the supply chain… there are shortages you can't overcome, the best planning doesn't really work. That is driving cost up, its component costs but also transportation cost, its labour cost," he said.
Swallowing component price hikes is something HPE said it tried to do where possible but Simon Ewington, veep of worldwide distribution, told the panel that some rises had been "astronomical", saying one specific part had gone from $0.89 to $25.
"The second more interesting element is that in a constrained supply situation, how do you manage your margin up and the two are very different," he said. "Vendors passing the cost on but you [the channel] are in a unique position that you haven't been for many years. As distributors, you can actually make money and in some ways the price is becoming less relevant, it's have you actually got the product."
So what do distributors think? Michael Urban, president of Americas at TD Synnex – the world's largest tech wholesaler – said rising average unit prices pinched customers' budgets and might not actually lead to higher revenues for suppliers.
He forecast a "next round of price changes very soon," saying: "We are now coming to the season and calendar year-ends for many companies, and I am sure 1 January we will see some nice increases from certain component vendors… and that will continue – transport costs etc. this combination has to be in the price."
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Simon England, CEO at security, networking and unified comms specialist distie Nuvias, said the bleeding obvious but someone had to. "The truth is for the channel it's a lot better if the vendors increase the price than try to squeeze the margin."
He cautioned: "The fastest growing security vendors are not selling on price. The fastest networking vendors are not selling on price." To which Brazier agreed: "If you look at who is winning in the industry, the likes of Apple and Google, they are not doing it with low prices, they are doing it with very high prices."
The Canalys CEO added: "With supply shortages, you change the conversation with your customer."
"You can also go to the customer and say, 'Well, you may want to stick with buying that brand but there might be a six-month delay, have you considered an alternative brand?' and that choice creates margin."
He said at the forum that a group of the biggest resellers now had market caps that are higher than many of the big vendors they sell and talked of shifting power dynamics.
"There is no doubt that one of the reasons why the channel is doing very well right now is shortages. And shortages will continue, we predict at least for the next 12 months, and most likely well into 2023. The key shortages of semiconductors will remain short, you simply cannot build new fabs quick enough to cope with the demand that's been created by this overwhelming success of the technology industry." ®