Exchange rates hit server prices

Server prices have been hit hardest by the dollar exchange rates according to a review of the market from IDC

Exchange rates have been a constant source of stress in the hardware industry so far this year and the impact of what has happened with the dollar has hit prices across Europe.

With most components being sold in dollars even those that build PCs in the far East and Europe have found that there has been pressure to raise prices or trim margin to cope with a strengthening US currency.

IDC has been looking at what the exchange rates, which have been an ongoing feature since the year kicked off, have meant for pricing and it has been particularly bad for servers.

Faced with a choice to swallow margin erosion or pass on price rises to customers the channel has been forced to do both as the exchange rates issues continue. Some of the measures taken in Q1 to try and limit the damage have proved to be unsustainable and made life harder for the channel in the long run.

For those that are selling x86 servers the price rises have been most noticeable, being higher than on PCs and storage products.

"The Western European x86 Server market has seen a 14% increase in ASPs in dollar terms, but prices declined in the channel at the same time. Major x86 server vendors executed several price adjustments in local currency (euros or others) to maintain dollar profitability," said Andreas Olah, senior research analyst, European Servers and Infrastructure Solutions at IDC.

There have been some chances for those channel players providing servers that are part of a solution with more customisation to offset some of the margin erosion.

On the PC front the drying up of Windows XP migration has added to the exchange rate caused problems and seen the market drop in the first half of this year and reverse some of the recovery made in 2014.

"Overall the PC market in Western Europe reacted with delay to the euro's weakness," said Chrystelle Labesque, associate director, IDC EMEA Personal Computing.

"A longer supply chain for some vendors as well as high inventory created a buffer for couple of months. But looking at 1Q15, the rise of the dollar created an impression that average prices were moving more towards the lower price band when in fact the market's value was stable or even slightly increasing in euro terms,” she said.

“Our expectations for the second and third quarters of this year include further euro price increases, which will have a negative impact on demand,” she added.

Storage has fared a little better thanks to the constant monitoring of prices and margins on that side of the industry. There were also some beneficial effects from technologies like Flash, which can help drive down ASPs.

"Meanwhile $/GB values in the Western European Disk Storage market deteriorated during the first quarter of 2015, declining 17% year over year owing to factors such as currency devaluation and increased competition in the upper mid-range to the high end. In particular, we have seen high levels of price competition in the All-Flash Array market," said Jimena Sisa, senior research analyst, European Storage and Infrastructure Solutions.

"Looking ahead, IDC expects that combined server/storage spending in Western Europe in 2015 will be 14.0bn in euro terms, with long-term growth remaining modestly positive,” she added.

The major vendors have all warned about price rises and that message should have got out to the customer but it does leave the channel squeezed by trying to keep the user happy and making sure they have some margins to keep their own businesses going.

The conclusion drawn from the IDC market analysis is that those that are providing solutions, services and a proposition that is not solely based on delivering tin should be able to recoup their losses on the hardware elsewhere.

It might be a good time to go on holiday in Europe and enjoy the strength of the pound but selling hardware in these conditions is proving to be a challenge for the channel.

IDC expects the market to stabilise but also for customers to look to invest their money in other technology and sweat their server, PC and storage assets for a little bit longer.​

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