How will weak pound hit the UK channel and IT spending?

An analyst, vendor and distributor have their say….

After falling to as low as $1.04 on Monday, the pound has improved slightly to around $1.11 today.

But considering that most IT goods are built and priced in dollars, what will a weaker pound mean for the channel and wider UK IT market?

We asked an analyst, vendor and distributor for their views....

The analyst's view

John Lovelock, distinguished VP analyst, Gartner

Have recent events forced you to make any changes to your UK IT spending forecasts?

The Devices Group has seen a slight decline [in our forecasts] in the consumer space, but there's been virtually no adjustment to software, services, data centre, communication, services spending in the enterprise space.

The total [UK] IT market will be $207bn in the UK in 2022 - a growth of 7.97 per cent. Of that, consumers are $44.5bn and businesses $163bn, a growth of 4.71 and 8.88 per cent. And next year the growth will be 6.2 per cent [with consumer growing 1.95 per cent and business 7.38 per cent].

"Most businesses are actually adding more dollars to IT spending this year to help other departments gain some competitive advantage"

So despite the turmoil around the weak pound and inflation, you haven't made any big adjustments to how you expect UK IT spending to pan out?

IT has moved from back office to front office, and even from front office to revenue generating for many companies. It's no longer a cost centre or a luxury or discretionary item that you can cut.

If you cut IT, you cut productivity and, in many cases, you cut revenue. And CFOs get that. They tell us they're not looking to cut overall enterprise IT spending. In fact, most of them are actually adding more dollars to IT spending this year in order to help other departments gain some competitive advantage, cost advantage and efficiencies.

Back in 2000, it was cut as a cost-saving measure. But CFOs and CEOs learned in 2020 that IT was the answer to their problems. So they're turning back to the department that saved their bacon in 2020.

What about potential UK price rises... how will they factor in?

You have to remember that there's a difference between an enterprise buyer and a consumer [when it comes to potential price rises due to the pound weakening against the dollar].

People buy down when technology gets more expensive. When they can't get what they want for the money that they have then they defer. Whereas, a business goes into the market and says ‘I already have 100 of these types of laptops. It's a i5, it has this much memory etc' and they need to buy that one again, to simplify their support, and to make sure that all their employees have a machine that will run all the company's software. So in the enterprise space, we see average selling prices go up much more quickly to reflect the retail prices, but in the consumer space when retail prices shift the average selling price doesn't change all that much.

How should channel partners and the CIOs they serve navigate this difficult period?

Servers are 3.7 per cent of overall IT spend in the UK for enterprises. If [prices] went up 10 per cent it's not going to make a big difference to the overall budgeting dollars.

Over the next 18 months there will be a lot more currency volatility. There is a risk to be borne around currency, whether you believe it's going to go up or down. For those that are good with taking on risk, there's potential that the pound is at a low rate. If you believe it's going to go up, then hold off on pricing. If you're uninterested in playing the currency game, lock in prices or switch to buying in US dollars.

But I think maybe the better answer here is to push some of this back to your CFO.

The distributor's view

Steve Low, sales director, Titan Data Solutions

How will the weak pound impact a UK-based distributor like Titan and the IT channel more generally?

The consistent downward trend in the value of the pound, followed by the recent sharp decline after the ‘mini-budget' is concerning and that will have some implications for the tech industry.

A crucial issue to consider is whether the fall in the pound is temporary or sustained. If the fall in the pound is temporary, many people will see short-term fluctuations in commodity goods prices, and these are mitigated quite comfortably (and often our export business sales will counterbalance this). Currency is one of many challenges our industry is facing at the moment. However, with inflation at its highest rate in over 40 years, rising interest rates, the huge rise in energy costs effecting datacentre power consumption costs, the geopolitical conflict in Ukraine and the ongoing supply chain issues, mitigating risk and providing transparent communication to our customers is more important now than ever before.

Titan take an active approach to FX rates, and we implemented a currency management system earlier this year

Titan take an active approach to FX rates, and we implemented a currency management system earlier this year. We are open book with our customers on all solutions with regards to the spot rate we use too, therefore fluctuations are generally handled with minimal disruption. Long term however, a consistent downward trend in the strength of the pound versus the dollar will ultimately lead to higher prices on all imported goods, regardless of industry. A key consideration to point out though is that it also reduces most vendor overheads in EMEA too, so we'd expect to and are seeing some flex there when it comes to pricing support.

Ultimately, it depends on the type of business you run and the solutions you are providing to the market. When it comes to Titan, and the critical infrastructure solutions we provide, customers put these type of purchases above all else, as opposed to commodity items, as the result of not implementing a project can have much wider repercussions - therefore explaining all the risks and potential barriers upfront is the best way to ensure that we and our resellers win and keep their customers happy and informed. This is and will always be, the most important thing to us as a business.

The vendor's view

Neil Sawyer, MD, Lenovo UK&I

How will the weak pound impact Lenovo's UK operations?

Currency fluctuations and other market forces are not new in our industry; most are driven by macro-economic forces in supply, demand and geopolitics. We are part of a large global supply chain. As with all aspects of doing business, we will make any adjustments necessary and, importantly, work with our channel partners and customers on communicating clearly and in advance of any anticipated changes.

Currency fluctuations are not new in our industry

And how will the weak pound impact your distributors and resellers?

All resellers will have different considerations for their business. Some resellers have a very distinctive global presence and others have a sole domestic focus. Our distribution partners do a brilliant job at managing the supply chain and financial flows for our UK channel, particularly with SME focused resellers. They key is to ensure predictability in how we do business, consistency in action, and speed of execution if changes do occur.

The other great element of the UK channel is the ability to pivot and reinvent. There are always new customer prospects, new solutions and services markets to pursue, and Lenovo is laser focused on supporting its partners in growing and expanding. Example areas are DaaS, Global Project Support, Collaboration Solutions, Microsoft partnership, Data Centre Growth, Hyper Converged and Edge Compute.

Is the amount businesses and consumers pay for IT hardware and software inevitably going to rise, and if so when will those price rises kick in?

Pricing is complex. As a mostly indirect company our pricing typically forms part of a wider solution and services agreement. We aim to manage the impact for our customers from price increases, however, the key is to support our partners in robustly communicating the justifications and reasons behind instances where corrections need to be made.

What advice would you have for your channel partners and end customers?

These are taken from a few conversations with our Lenovo partners in the past couple of weeks. Four key areas of advice:

A) Diversify and cross pollinate - customers love innovation and particularly those that deliver on the broader objectives in efficiency, environmental and cost

B) Work with your distribution partner and vendors including Lenovo to support specific customer discussions where you need the incremental support

C) Understand how to drive strong value for your business and customer facing team members through programmes such as Lenovo's Partner Programme

D) The average partner has 99 per cent of the IT market to capture. The UK has around £12-15bn of addressable spend per year, and the opportunity to drive services and consultancy in addition. Work with your partners such as Lenovo to develop joint propositions relevant to key industry and market solutions