Hard times for corporate resellers

Component cost pressures and delayed product refreshes mean that resellers need to manage business customer expectations carefully, suggests Mathias Knoefel

The past year saw suppliers and customers navigate further economic challenges. Extended life-cycle management has led to firms delaying PC hardware refreshes. However, this year we have seen some turnover due to the end of Windows XP support. BYOD has had only a limited effect so far.

Cost savings are necessary; alas, when given the choice of a tablet or a light but powerful notebook, plenty of people still opt for the latter.

Many such devices in large companies are four years old. So let's look at the component cost evolution for launches in the summer of 2010. Configurations usually remain available for about a year. Index change calculations are based on third-party vendor components and distributor sell price.

Ultra-portable notebooks in July 2010 with a 12.1in TFT WXGA (LED) screen, a Core i5 2.53GHz processor, a 160GB HDD and two 2GB RAM modules saw prices slide 6.3 per cent over 12 months, based on the quarterly index changes.

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Upgrading to a 12.5in TFT HD screen, Core i5 2.5GHz processor, 250GB HDD and a single 4GB RAM module only reduced the price decline to 0.3 per cent.

Around that time, Apple also updated its MacBook Air 11in and 13in product with core i-processors, making an ultra-portable available below £1,000, inclusive of VAT.

Many vendors felt the need to cut their prices and margins to compete. Corporate buyers might have seen only a small impact from this, depending on their discount structure.

The Thailand floods in October 2011 affected HDD production. Component prices would have risen higher, if certain other components had not been in over-supply. By the end of the product life cycle, index change had levelled at -0.1 per cent, prior to the delayed transition to successor product in Q3 of 2012.

Next-generation models with Core i5 2.6GHz processors and RAM modules with 500GB HDD saw the index for the total configuration rise 2.7 per cent at the time of transition. By Q4 of 2012, the component cost index reached its lowest level for this configuration.

From then, though, component costs increased for processor, display and RAM modules. A further delay in introducing the next generation of business PC hardware meant that by Q4 of 2013, we were back at the starting point for this configuration, 18 months down the line.

© All charts are copyright Context 2014 -- all rights reserved

The next product transition included the latest Core i5 4300U 1.90GHz processor, an upgrade to 8GB RAM and 128GB SSD, reflecting an index change of almost 11 per cent, for the first time in four years pushing the index level above the 100 per cent mark, from where we started. Since Q4 of 2013, component costs have decreased by about 2.2 per cent to the buyer.

Comparable products, almost four years down the line, will be more expensive than the old products - although processing power, display resolution and battery life have improved.

The supplier will need to manage expectations carefully. On the one hand, it might be tempting to acquire new customers by selling below cost at this point. On the other hand, have the margins on existing customers been achieved?

Mathias Knoefel is senior manager of corporate benchmarking and pricing research at Context