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 is on the increase.
• Growing concern for business processes, demand for reduction of hardware-related costs, and more deployment of cloud-based services.
• Switches and networks have low/medium availability of substitutes which creates a high concentration in the market, having 4 to 5 vendors controlling 50% of the market share.
• Product specialization for Switches & Network Security HW is high, creating complex solutions and having to involve experienced vendors. Cost increases and there are fewer qualified vendors & partners.
• Once your environment is ongoing, it’s really complicated to make any changes to another vendor. Investment is substantial and risks are high.

Demand Commentary

• Increasing demand for new technology installations and a strong regulatory framework for consumer security is accelerating the growth of the IT infrastructure services market.
• Gartner forecasts worldwide server shipments will continue to be on the rise at single-digit rates throughout their five-year forecast, i.e., through 2027.
• Statista forecasts cloud computing revenue at an annual growth rate of 13.81% throughout the same five-year forecast period, through 2027.
• According to Markets and Markets, Data Centers play a big role in rising technologies and are expected to grow by 7.5% next year.
• Revenue in Network Security is expected to show an annual growth rate for the 5-year period (2023-2028) of 12.06%.
• Network Infrastructure Device vulnerabilities can be overlooked by organizations, driving costs up to 9% of annual revenues, due to potential misconfigurations.

Supply Commentary

• Supply chain risk for both the cloud computing and computer server market is at a moderate level, based on high demand, industry risks, and continued volatility in computer and telecom networking equipment manufacturing.
• Market share concentration is high, restricting price-based competition.
• Global chip shortage and high demand for electronics continue to have an impact, post-pandemic.
• High level of volatility on semiconductors and aluminum.

Pricing Situation

• The cost of utilities and average wages are forecasted to continue the rise although at a much slower pace than in previous years, which will contribute to the rising cost of IT infrastructure and cloud computing costs.
• Pricing is expected to reduce in the next few years for computer servers as supply chain issues subside and innovation helps mitigate pricing pressure.
• Reviewing the total cost of ownership continues to be critical, particularly monitoring costs related to integration, installation, and the powering of switches which command half of the benchmark price.
• Concentration within the network switches market is high, with 4 suppliers making up close to 50% of total revenue which restricts price-based competition.
• Pricing for network switches is expected to continue to increase due to high demand and increased production costs for suppliers.

Supply Analysis

• High market concentration in the IT hosting service and computer server market due to a small number of dominant players.
• Top market players account for more than 50% of IT hosting services and 45% of computer servers.
• Substitute options for routers are limited, due to no other equipment on the market performing the same function. Software-defined networking, however, does enable the creation of your own routers, as long as the necessary hardware is available.
• The more specialized and customized the product, the less leverage for buyers for both network switches and 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 buyer leverage—wireless vs non-wireless is an option but, only as part of a holistic review of a company’s overall strategy.

Market Overview

• Over the past 12 months we have observed a number of software vendors implement price increases—noticeably, more increases than usual.
• We have also seen many vendors that are applying sizable year-over-year increases, even on multiyear agreements.
• SaaS price hikes of 15- 23% on average are predicted for 2023, due to a number of factors, including:
  • some of the larger titles make up for inflation,
  • continued AI development and technology enhancements, and
  • rising IT staff costs.
• We continue to see upward (i.e., inflationary) pricing pressure across software publishers.
• More publishers continue to be made available in the public cloud.

Demand Commentary 

• 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 de-couple support from existing subscription and maintenance costs to create additional revenue streams and negate existing and maintenance costs to create additional 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 Commentary

• Adobe bid to acquire Figma in September 2022; however, the acquisition is under antitrust scrutiny both in the US and Europe.
• Silver Lake’s USD 12.5 billion acquisition of Qualtrics, the user experience company briefly owned by SAP.
• Thomas Bravo’s USD 8 billion deal for Coupa Software.
• According to Morrison & Foerster's annual Tech M&A Survey, published in November 2022, AI will be the hottest market sector for deals, according to 51% of respondents, up from 3% last year, with cloud favored by 31%, down from 54% last year.

Pricing Situation

• We are seeing software suppliers raising prices or attempting to raise prices across all categories.   
• Long-term pricing negotiation is the best practice to lock in favorable discount structures.
• A multiyear commitment will still have yearly increases but may be stepped down. (For example, 6% in the first year, 4% in the second year, and 2% in the third year.)
• There is potential for 15% - 20%+ increases over a 3-year period. Buyers should be proactive and ask themselves, "Does this make fiscal sense for us? / What happens if the economy improves and CPI goes back down to normal?”, usually between 1.7% - 2.5%.
• Protect critical applications by evaluating the viability of third-party support when software vendors attempt to convert your existing embedded offerings to new support offerings.
• The utilization of third-party assessments of software pricing is gaining traction and is considered the best practice for ensuring optimal pricing.

Supply Analysis

• We continue to see plenty of supply within software technology and expect this to remain for the foreseeable future, i.e., the next 12 Months.  
• The market size value in 2022, is USD 474.61 billion. The revenue forecast for 2030 is USD 1,153.7 billion
• Economic headwinds are forcing 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.
• 12/31, Amazon Web Services, Citrix, Google, IBM, Quest Software, SAP. ServiceNow, 1/28, VMware -1/31, Carbon Black, CrowdStrike, Mulesoft, Okra, Salesforce, Splunk, Snowflake. Tableau, Workday, Zoom
• We are continuing to see more publications available in cloud applications and expect that to continue into the foreseeable future.
• New entrants in cloud optimization and cloud security have created more supply options with good ROI.

Market Overview

• The first quarter of 2023 brought further uncertainty to the global PC market. Total shipments of desktops and laptops declined by 33 % or equal to 54 million units. There have now been double-digit declines for four consecutive quarters.
• The laptop market experienced significant reductions, marked by a 34% drop year-over-year to about 42 million units with desktops performing slightly better, registering a decline of 28% to 12.1 million units.
• Demand remains soft after a weak holiday season at the end of 2022 and action to reduce inventory remains a priority.
• The demand across all customer segments remains soft. Both consumers and businesses are exercising caution, particularly as interest rates continue to rise.
• Analysts expect a slow recovery in the second half of the year with the potential for momentum gathering speed going into 2024.
• Despite these headwinds, demand recovery will be driven by the ongoing transition to Windows 11, new workstyles, and new demand for Digital Education.

Demand Commentary

• Digital transformation remains resilient in the face of macroeconomic headwinds. IT spending remains strong despite stagnating GDP and high inflation across most countries.
• Companies are optimizing spend using digital technology to transform their company's value proposition, revenue, and interaction with their clients. This continues to drive PC demand and other technology devices that improve productivity or fulfill commercial needs.
• Effective July 2023, Microsoft will be imposing downgrade costs on older OS as part of Windows 11 support. This will drive refresh purchases for existing systems with CPUs not meeting minimum requirements.
• Deferment of purchasing continues to drive lower demand; expect this dynamic to continue for the remaining quarters of this year.

Supply Commentary

• For raw material supply shortages have eased in 2023, and the supply of high-end semiconductors used in computers, smartphones, and tablets has returned to normal.
• Channel partner stock remains high providing more flexibility to get immediate stock for the drop in requirement.
• The average lead time from the factory has declined as much as 1 - 2 months for laptops and desktops.   
• Ongoing geopolitical tensions, including those between the US and China (such as the high-altitude surveillance balloon incident), continue to create disruptive risks to improving supply dynamics.

Pricing Situation

• Price volatility will continue throughout the year in this market. Key drivers include:
  • Wage pressures,
  • Dependency on semiconductors availability,
  • Macroeconomic factors (higher interest rates, inflation), as well as
  • Ongoing geopolitical tensions.
• The top 4 manufacturers in this market control over 50% market share—high market share concentration gives a single supplier or group of suppliers strong pricing power over the market.
• Long-term pricing negotiation is the best practice for locking in favorable discount structures and substitute options like leasing and rental (aka, device-as-a-service) as leverage in negotiations.
• Continue to work with OEM in evaluating and qualifying the new low-end technology with equal or closer specifications to control costs and increase supply availability.

Supply Analysis

• The lead time of hardware is returning to pre-pandemic levels; average lead times from the factory have been reduced to 1 to 2 months for laptops and desktops.
• Semiconductor shortages have eased; chip shortages have also improved in 2023.
• Supply levels increasing partly due to combined slowdowns in economic growth, globally and overall declines in consumer spending.
• Proactively address lead time volatility through leverage of demand-based forecasts and work on safety stock through leasing or device-as-a-service program.
• Refurbished PCs are an alternative option supporting the drop in demand or expansion, while also helping improve supply-chain sustainability.
• Refurbished PCs are also impacting demand declines an alternative option supporting the drop in demand or expansion. This also improves supply-chain sustainability.
• The top 3 manufacturers - Lenovo, HP, and Dell - contributed more than 70% of the total shipment for Q1 2023.