The big interview: Scan Computers on rising tech prices and the falling pound

PCR asks Scan Computers group MD Shelley Raja (pictured), director Elan Raja III and currency expert Anand Raja for their views on rising prices in the channel…

Exchange rates have fluctuated, and the pound’s value against the dollar has fallen. Will tech buyers be paying more for goods in the future?

Shelley Raja, Scan Computers founder: Things are very turbulent at the moment and these exchange issues will affect the revenues at Scan throughout 2016 for sure, but we are as prepared as we can be.

From the manufacturers’ perspective, they are effectively paying more for their raw materials and must eventually pass on the cost if they are to remain profitable.

The Euro has also been affected; we’re seeing more demand from European customers simply due to the pound/Euro/dollar exchange. So yes, that’s why tech buyers are paying more now and will be in the near future.

Also, China don’t want one billion people to be unhappy over Chinese New Year, so will prop up the market, but all hell will break loose when they come back from holiday.

Elan Raja III: The US have raised their base rates; the UK is still not sustaining growth and have opted not to rise. This has caused the GBP to weaken against the USD. Consequently, all imports of tech are more expensive. Demand is obviously dented by higher prices, so over time, once the market prices in the new rates, the sales volume balances out as the base price becomes the industry price.

As long as manufacturers keep innovating, and creating must-have products, consumer demand will always be there.

Will the price of the pound fall further? What should the UK PC industry be aware of?

Anand Raja, TF Capital MD and Scan Computers currency trading specialist: The UK is running a current account deficit of around six per cent of GDP. This is the difference between goods and services exported and goods and services imported.

A country running a current account deficit is living ‘outside of its means’. This is at an all-time high and looks unsustainably high. 

The referendum on whether the UK leaves the European Union or not seems to be scaring some investors. How will that affect industries like ours?

Anand Raja: Markets do not like political instability and investors are likely to pull out as they wait for the situation to stabilise. 

This will continue to be the case whilst the possibility of the UK leaving the Eurozone is still on the cards.

Some have been worried about low inflation figures. How might that change in the future? 

Anand Raja: Whilst oil is at these levels and dropping, we are seeing very low inflation figures. Whilst this is the case, the Bank of England will keep rates lower for longer. This in turn will keep the pound under pressure.

How else could the Eurozone problem affect business? What should firms be aware of?

There were elections in Greece and Portugal late last year, with the French election due next year. As we have seen in the UK, Euro-skeptic parties are gaining popularity. If there are any shocks in future elections and there are problems in the Eurozone, we will be affected, as this is our largest trading partner.

BREAKING DOWN THE POUND

TF Capital and Scan Computers’ Anand Raja breaks down the changing value of the pound and what it means…

Long-term

• Long-term, there is a clear downtrend from 1980 to 1985 when the rate dropped from $2.45 per £1 to $1.038 per £1. Also, during this move, when the price corrected up at certain stages, it was very small with not much overlap. This is a classic strong down trend.
• From 1985 to 2007, the rate gradually moved up to 2.11, which is 76.4 per cent of the original drop. However, to regain 76.4 per cent ($1.07/£) of this loss, it took 22 years! There was lots of overlap in price.
• From 2011 to 2009, the price again moved down very fast with little overlap, which indicated a resumption of the down trend.
• Between 2009 and 2014, we again saw a period of upward movement, but this was very slow and had a lot of overlap.
• When the price moves down, it is very sharp with little overlap, but when we move higher it seems like a correction and is a slow drawn out affair.

Medium-term (2007 to 2016, USD per 1GBP)

•  This type of correction plays out in three phases. It looks like a classic zig zag correction in phase one and three, with phase two being a drawn out correction.
• During phase one, the price dropped 76 cents in 14 months. Afterwards, a long drawn-up move (correction to the trend) saw the value of the dollar to the pound move up 37 cents in five years.
• Since June 2014, we have seen seven consecutive months of down moves, which indicates that we have probably started the next move down. As we saw in the move from 1980 to 1985 and 2009 to 2011, these moves tend to be very sharp with little pull back (or overlap).
• As long as the rate stays below the 1.7187 peak of June 2014, the price can be expected to drop lower.

Short-term (2014 to 2016, USD per 1GBP)

•  Please note that the price could move into the 1.5750 to 1.5850 area. However, I see this as a lower probability than the 1.53 to 1.55 area.
• When the move resumes, the next port of call will be the 1.4680 area.
• In mid-2015, the price began to dip again, signalling that we are entering a down trend. 

Summary

• The price seems to have been in a down trend since 1980
• In the early ‘80s, and from 2007 to 2009, the price sharply dropped very quickly
• Between 1985-2007 and 2009-2014 we saw a sloppy drawn out correction
• It seems a sharp down trend has resumed with $1.2460 being the first target. This is invalidated if we move over $1.7187
• The next probable resistance is $1.53 to $1.55 before we resume the move down