MARKET OVERVIEW

• The need for affordable IT infrastructure, developed infrastructure, and implementation of new projects is on the rise.
• Acceptance of IT infrastructure services and cloud-based software development are increasing.
• Growing concern for business processes, the demand for reduced hardware-related costs, and more deployment on cloud-based services.
• The server market experiences high growth rates mainly due to solid cloud adoption rates, increasing demand for data storage, processing capabilities, digital transformation initiatives, and big data analytics.
• Switches and networks have low/medium availability of substitutes, creating a high concentration in the market, with 4 to 5 vendors controlling 50% of the market share.
• Product specialization for Switches and Network Security HW is high, creating complex solutions and involving experienced vendors. Costs increase, and there are fewer qualified vendors and partners.
   

DEMAND COMMENTARY

• Increasing demand for new technology installation and robust regulatory framework for consumer security accelerate the growth of the IT infrastructure services market.
• Gartner forecasted worldwide server shipments to continue to rise at single-digit rates throughout the five-year forecast through 2027.
• Statista forecasted cloud computing revenue with an annual growth rate of 13.81% throughout the five-year forecast through 2027.
• Statista forecasted server revenue of an annual growth rate of 5.79% by 2027.
• By 2025, 50% of new software-defined WAN (SD-WAN) purchases will be part of a single-vendor secure access service edge (SASE) offering, a significant increase from 10% in 2022.
• By the end of 2025, at least 30% of enterprises will employ software-defined cloud interconnect (SDCI) services to connect to public communication service providers (CSPs), increasing from approximately 10% in 2020.
• By 2026, 70% of enterprises will have implemented software-defined wide-area networks (SD-WANs), compared with approximately 45% in 2021.
• By 2026, 45% of the enterprise locations will use only internet services for their WAN connectivity.
   

SUPPLY COMMENTARY

• Supply chain risk for cloud computing and computer server markets is moderate based on high demand, industry risk, and computer and telecom networking equipment manufacturing volatility.
• The amplified need for robust and scalable server solutions to handle rapid growth of data volumes.
•  Server manufacturers must continually innovate to stay ahead in this competitive server market by investing in research and development (RandD) to develop new technologies, increase performance, and improve energy efficiency. 
• Robust security measures are needed to address data integrity and privacy concerns, including encryption, authentication protocols, and intrusion detection systems.
• Market share concentration is high, restricting price-based competition.
• Global chip shortage and high demand for electronics continue to hit after the pandemic.
• High level of volatility on semiconductors and aluminum.
   

PRICING SITUATION

• Cost of utilities and average wages are forecasted to rise much slower than in previous years, contributing to the rising cost of IT infrastructure and cloud computing.
• Pricing is expected to reduce in the following years for computer servers as the eases on supply chain issues and increasing innovation.
• Once the environment is ongoing, changing to another vendor is complicated. Investment is substantial, and risks are high.
• Concentration of the market for network switches is high; four suppliers make up close to 50% of total revenue, restricting price-based competition.
   

SUPPLY ANALYSIS

• High market concentration in IT hosting service and computer server market due to the dominance of players.
• Top market players account for over 50% of IT hosting services and 45% of computer servers.
• Major players are entering into collaborations and expanding their footprint in developing regions to consolidate their position in the market.
• Substitutes for Routers are low; no other equipment on the market performs the same function. However, Software-defined networking is a network architecture that could let you create your routers, keeping in mind that you have the necessary hardware.
• The more specialized and customized the product, the less leverage for buyers on either Network Switches or Security Equipment.
• The best way to create leverage is to revisit Partner strategy and compete where possible. Lastly, if there is an opportunity, competition of OEM will also support buyers’ influence; wireless vs. non-wireless is an option, but the company’s overall strategy must be reviewed.

MARKET OVERVIEW

• We have seen several software vendors go through price increases in the past 12 months – more than usual.  We have also seen many vendors applying sizable year-over-year increases, even on multiyear agreements.  
• SaaS price hikes of 15- 23% on average are predicted in 2023 due to some more prominent titles making up for inflation, continued AI development/enhancements, and rising IT staff costs.
• We continue to see upward pricing pressure (inflationary) across software publishers.
• More publishers continue to be available in the public cloud
• An increasing number of publishers are transitioning from on-premises to Software as a Service (SaaS), prompting customers to embrace new subscription models.
   

MARKET DYNAMICS

• Reducing or delaying SaaS commitments through 2024 will result in a 25% increase in SaaS costs through 2026.
• By 2025, 50% of organizations will be forced to make their subscription or support a single-year contract with 8% or more annual adjustment rates.
• By 2026, 50% of enterprise applications will separate support from existing subscription and maintenance costs to create additional revenue streams and negate existing and maintenance costs to develop other revenue streams.
• By 2025, 30% of enterprises will demand that SaaS vendors provide license and consumption specialists to manage waste and retain their business.
   

SUPPLY ANALYSIS COMMENTARY

• We continue to see plenty of supply within software technology and expect this to remain for the foreseeable future.  (Next 12 Months)   
• Economic headwinds force vendors to turn to aggressive revenue tactics – from informal and formal software license audits to unjustified price increases.
• Expect this behavior to get more aggressive from vendors with upcoming fiscal year-ends. If you have a purchase or renewal with any of these vendors on the horizon, prepare now.
• We continue to see more publications available in cloud applications and expect that to continue into the foreseeable future.   
• New cloud optimization and security entrants have created more supply options with good ROI.

MARKET OVERVIEW

• During the third quarter of 2023, the Global PC Market experienced a continued decline in shipments, registering a 7.6% year-over-year drop, equivalent to 68 million units, according to data from the International Data Corporation (IDC).
• The positive is that the shipments have increased from the bottom in the last two quarters, indicating a slow recovery trend and slowing down the annual decline rate.
• With the succession of clearing the old stock, the channel inventory level has been leaner and healthier compared to last quarter.
• Notably, the soft demand trend is still pervasive across all customer segments, affecting consumers and businesses. 
• This caution in expenditure is influenced by the high-interest rates in most regions to counter inflation.     
• Despite these challenging factors, several positive developments are on the horizon.
• Gradual recovery has been seen in the latter half of the year, with momentum expected to gather further in 2024 with news that the Federal Reserve may cut interest rates next year.
• The transition to Windows 11, coupled with Microsoft's decision to discontinue support for HDD (Hard Disk Drive) and the growing demand for AI computing, are poised to reinvigorate and stimulate demand in the market.
•  At the time of writing, the Middle East conflict remains a regional crisis. However, the prospect of further escalation may negatively impact the world economy, offsetting any positive trend mentioned so far.
   

DEMAND COMMENTARY

• Over the past few months, macroeconomic conditions have remained unchanged or, in some areas, worsened with the burst of the current Middle East conflict. The demand forecast for the remaining year will need to be reviewed with a downward trend.
• The surge in demand for PC hardware during the pandemic has largely been satisfied, resulting in declining consumer demand. However, there are expectations for increased demand from businesses in 2024, driven by the following factors:
  • Companies are optimizing spending while leveraging digital technology to transform their value propositions, revenue streams, and client interactions.
  • Additionally, the growing momentum in AI computing is expected to boost demand for PCs and other technological devices, enhancing productivity to meet evolving business needs.
  • Microsoft's recent announcement to reduce costs for older operating systems and discontinue support for SATA HDD (Hard Disk Drive) starting July this year has significant implications.
  • Companies must migrate to Windows 11 and adopt SSD (Solid State Drive) technology. This mandate will likely drive new purchases, especially when existing CPUs and storage solutions do not meet the minimum requirements.
• As a result of deferred purchases and the evolving landscape, demand is expected to continue at a slower pace for the remainder of this year.
• During the APEC summit in November, the U.S.A and China agreed to establish an intergovernmental dialogue on artificial intelligence, gaining optimism among tech leaders such as Google, Microsoft, OpenAI, and Meta.
• Tech experts are optimistic that the cooperation between these two superpowers and the generation of regulation for this emerging technology will boost hardware demand further.
   

SUPPLY COMMENTARY

• As of 2023, the supply of high-end semiconductors used in computers, smartphones, and tablets has returned to normal, significantly easing the previously experienced shortage.
• Channel partners maintain a healthy stock level, providing flexibility to accommodate sudden demand drops.
• The average lead time for laptop and desktop deliveries from factories has been reduced to a manageable 1 to 2 months.    
• However, it's important to note that ongoing geopolitical tensions still pose potential supply risks, particularly between the United States and China, the ongoing Russian and Ukraine conflicts, and the new Middle East conflicts.
• In October, India decided to withdraw its decision on the restrictions on the import of computers and laptops, which it first announced back in August due to backlash from the industry.
• The initial plan, if implemented, will significantly impact top suppliers like Lenovo, HP, Dell, and Apple. It is advisable for businesses operating in India to continue to prepare accordingly, considering the history of frequent policy changes.
• In November, China’s leading AI firm, Baidu, placed their AI chips with Huawei over chip giant Nvidia. As we have seen in the memory market, this will significantly impact supply – new players are over-supplied, eventually causing the price to drop.
   

PRICING SITUATION

• Price fluctuations in the market are driven by several factors, including:
  • Volatility in critical drivers such as wages.
  • Dependency on the availability of semiconductors.
  • Macroeconomic factors like high-interest rates and inflation.
  • Ongoing geopolitical tensions.
• These factors will likely continue contributing to price fluctuations throughout the year.
• The market exhibits a high concentration level, with the top three manufacturers (Lenovo, HP, and Dell) controlling over 50% of the market share.
• This concentration indicates that a single supplier or a group of suppliers wields considerable pricing power in the market.
• Implementing long-term pricing negotiations is considered a best practice, as it allows for establishing favorable discount structures.
• Moreover, exploring options like leasing and rental, often called "Device as a Service," can leverage negotiation.
• It is advisable to maintain a collaborative relationship with OEMs to assess and qualify new low-end technology offerings with specifications that closely match or equal current standards; for example, both AMD and Intel offer the best price-to-performance ratio depending on the application used.
• This approach helps control costs and enhances the availability of supply.
• While specific components experienced shortages in the past, some have now transitioned into a surplus due to overproduction and new players coming into the market. For example, memory prices have trended down due to these reasons.
• This trend is expected to continue throughout the year. Buyers are encouraged to take advantage of this strategic planning and procurement opportunity.
   

SUPPLY ANALYSIS

• Hardware lead times have returned to pre-pandemic levels, with the factory’s average lead time for laptops and desktops now ranging from 1 to 2 months.
• The semiconductor shortage has improved significantly, and chip shortages have also shown signs of easing in 2023.
• This improvement can be attributed, in part, to the slowdown in global economic growth and consumer spending, which has contributed to an increase in supply.
• To mitigate lead time volatility, planning demand based on forecasts and establishing safety stock through leasing or participation in a Device as a Service program is advisable.
• Refurbished PCs offer an alternative solution to address fluctuations in demand or support expansion efforts.
• Additionally, opting for refurbished hardware not only help reduce the lead time and cost but contributes towards supply chain sustainability as offsetting carbon footprint has becoming an important KPI for global business.
• Notably, the top three manufacturers, namely Lenovo, HP, and Dell, collectively accounted for over 50% of total shipments in Q3 2023. This data highlights the significant market presence and influence of these key players in the industry.