The price of PC parts is on the increase as several economic factors begin to take their toll on the tech channel.
Exchange rates have fluctuated, meaning the pound’s value has fallen from around $1.55 to $1.43 in the space of a few weeks, with some predicting it could tumble as low as $1.25 in Q4 this year.
This means that tech companies importing stock are having to pay more, and are subsequently losing money on each sale because of the weak exchange rate.
Other macro economic factors are having a wider impact on trade in general. Oil prices are rising, which is having a knock-on effect on certain businesses, VAT is being introduced in Dubai and UAE which some say will cause business owners to flee, while there are fears of slowing growth in China.
Profit warnings have also apparently reached the highest level since the last recession. Interests rates are low, but that too presents dangers.
Additionally, last week, £50 billion was wiped off the FTSE in a day, and investors are worried that the majority of Brits may vote to leave the European Union, which could weaken the pound even further.
All of this has led some to believe there will be a global recession in 2016.
But is this doom and gloom really going to seriously affect the UK tech and PC channel, or will it be business as usual in 2016? It’s not the first time this has happened, with tech firms being hit hard by volatile exchange rates last year.
We asked retailers, distributors and vendors to find out what could happen this year.
One senior UK PC retail source told PCR: “The exchange rate has killed us – it’s affecting us massively and it’s only going to get worse. It began to impact us from last week onwards. We’re okay now, because we’re sitting on old stock that cost us less, whereas the small indies buying new are having to pay more.
“So we may have to increase our prices – you’ll see a £3 or £4 increase on a motherboard for example. When you sell hundreds of these at a time, it adds up. Basically, everyone is getting less for their money. And we’re not just talking computers here – we’re talking every product you can think of, worldwide.
“China is now devaluing its currency. If you look at things from a higher level, look at what the banks and the super rich billionaires are doing with their money, they’re liquidating it. If they’re doing that, they know something we don’t. They’re doing really dodgy sh*t with their money which means they’re preparing for something.”
The source went on: “It’s a very serious situation, because we’ve had such a drop. The city boys are predicting it to get even worse and that consumer panic will set in – they’re expecting consumer sales to drop by at least 20 per cent. If that happens, we’re all ruined. I talk to a lot of big vendor companies at MD level and they are already preparing for job losses.
“2016 is going to be a very bad recession. It’s going to make 2008 look like a fairy tale. Forget 2008 – this year’s recession is going to make 1929 look like a p*ss in the ocean.”
How the pound has fallen: This graph shows the USD per £1 exchange rate over the past two years (source: XE.com)
However, Elan Raja III, director at Scan Computers, believes consumer demand will continue as long as vendors keep launching innovative new goods.
“The US have raised their base rates, and UK is still not sustaining growth and have opted not to rise. This has caused the GBP to weaken against the USD, and consequently, all imports of tech are more expensive,” he said.
“Demand is obviously dented by higher prices, over time once the market prices in the new rates, the sales volume balance out as the base price becomes the industry price. The negative impact is weathered differently dependent in what sector you are in.
“As long as the tech manufacturers still keep innovating, and creating must-have, products consumer demand will always be there. Luckily, cheap borrowing and cheap fuel reduce the impact of an adverse foreign exchange rate.”
‘RETAILERS MUST NOT PANIC’
Some UK tech distributors and vendors have a more positive outlook.
Rich Marsden, director at VIP Computers, said: “The dollar rate goes up and down, and has done forever – pricing fluctuates. It has been a steeper decline than what we’d anticipate, but pricing settles itself out. Once inventory catches up with the rate, the price goes up.
“When we buy stock in, we base it on the price it lands at. So it’s easy for distribution – for us it’s not a problem. For a system builder or retailer, they’ve probably just lost the margin.
“In terms of an economic outlook, I think the economy is reasonably buoyant, personally. I think it’s pretty good right now in the UK – we’re doing well.”
Another senior UK tech distribution executive, who wished to remain anonymous, said that it’s important retailers do not panic.
The source commented: “Everyone in the tech space is feeling the pain of the foreign exchange movement – though it has recovered a bit – the pressure is coming from all angles.
“The retailers need to maintain end user pricing and not shift the trend upward, as that could cause a slowdown in business. For example, a £299 notebook changing to £319 doesn’t come across right, and not to mention the workload/admin to implement this at store level.
“There is also the pressure of stock in the channel at older pricing being supplied in from older agreements and when that will flush through to Q2 ranging, so retailers are worried they could lag behind if they have pushed stock out to early."
They went on: “I think manufacturers are feeling the pressure due to the delay in locking range from retailers, and therefore there are more price changes and re proposals than usual. Some businesses and suppliers are buying and selling in dollars to cut off the movement, some have hedged pre-drop and therefore are seeing consistency over a period until potential recovery.
“But most of the retailers I talk to and the business I see is reasonably solid, so I have no reason to think the UK is in dire straits from a tech perspective.”
How much are manufacturers feeling the pressure? Vendors such as Hannspree say that while the exchange rates have been challenging at times, the current situation is stable.
Martin Kent, Territory Manager, UK and Eire, at Hannspree UK Ltd, told PCR: “The erratic exchange rates over the past month have certainly had an impact on our landed costs onto the UK, however the falling cost of the components at manufacturing level have ensured our selling costs to our UK partners have remained relatively stable.”
When asked if they are seeing to price of components rising, another wholesale distributor replied anonymously: "Yes, both AMD and Intel restock initially rose, but it always does in January. It seems to have settled a bit, especially in USD.
"If you look at the UK however, you will see a big change. This is primarly due to the foreign exchange rate, which before Christmas was much better if you bought in GBP. So anyone who bought their stock in GBP before Christmas is now in a strong position, compared to someone who holds their stock in USD.
"The smart thing to do is to look for all those disties that hold their stock in GBP and vacuum that stock up. That way you do two things: you remove the cheap stock from the market and provide yourself with better-priced stocks. If the distie knows the market, they will of course be watching the USD/GBP rate and increase their prices accordingly, maximising their profit. But often there is a disparity between purchasing and sales."
Affected companies will no doubt be keeping an eye on the exchange rates over the coming weeks, and thinking about how they may need to adapt their businesses as the year progresses.
So, it’s perhaps not quite the end of the world just yet. If there is to be another recession (and of course there will be at some point), companies who weathered the storm in 2008 will be better prepared this time around. Let’s just hope it’s not torrential.
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