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CIOs warned of IT overspending risks as US dollar strength grows

The strengthening US dollar could result in enterprises overspending on IT, as suppliers sneak in under-the-radar price hikes, Gartner warns

CIOs could end up accidently overspending on IT in 2015, according to Gartner, as the strengthening US dollar prompts suppliers to covertly hike the cost of products to account for the shortfall in exchange rates.

The warning comes as the analyst house made public its prediction that worldwide IT spending will contract by 5.5% this year compared with 2014 levels because of the growing strength of the US dollar.

The organisation has been quick to add, however, that this projected downturn isn’t all it seems, and is simply a “mathematical impact” of viewing the IT market in dollar terms.

If exchange rate fluctuations are disregarded and the market is viewed in constant currency terms, said Gartner, IT spending is actually forecast to grow by 2.5% this year.

Even so, the knock-on effect of the dollar’s strength means many US hardware suppliers are hiking up their product prices to protect their margins and cover costs, head of forecasting John-David Lovelock told Computer Weekly.

“The cost of a PC has gone up because the components are priced in US dollars, and this has a follow-on impact increase to consumers in Europe,” he said.

“Everything that is hardware-related has been subject to a solid price increase. Networking, storage, mobile, PCs and printers are all going up in price.”

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Not that users would necessarily notice, Lovelock warned, as some suppliers have taken steps to disguise their price hikes or indulge in “obfuscation” to throw IT buyers off the scent.

“As software vendors have increased their prices, we’ve seen users not noticing. CIOs will be surprised by what their IT spend ends up being this year, and there will be a lot of organisations that overspend,” he said.

“Any large, new projects they’re working on are going to come in on the budget they expect to, but the things they’ve farmed out and allowed others to maintain budgets on will be where the price increases are snuck in.”

As an example, Lovelock cites the alleged increase in maintenance costs some suppliers have tried to sneak through, which he claims may float under the radar of your average CIO.  

“We’re looking at the US dollar being high through 2017, but the effect we’re seeing now is around product vendors re-pricing, using obfuscation and trying to keep the revenue they generate in line [with their in-house projections],” he said.

“Next year it will be about recovering margin and the year after that, there will be a whole new world out there.”

The latter point is in reference to the long-term effect the strong dollar will have on imports and exports arrangements between different countries, which could benefit some suppliers and harm others.

“Printers are an interesting market right now, particularly in Europe, as it’s the only market where we have a vendor who has non-US based products and that’s Fujitsu,” said Lovelock.

“So they’re able to come to market, keep their prices stable while their US counterparts are forced to raise prices. This has led to a shift, at least in terms of interest, in Fujitsu.” 

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Price hikes on both products and services can really be sneaked in at any time. Anything is negotiable, though, or at least should be approached as if it is. It really takes a conscientious, detail-oriented management team under the CIO who will put in the time and effort to keep costs under control. 
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