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.
• There is a growing concern for business as the demand for a reduction of hardware-related costs and the deployment of cloud-based services increases.
• The server's market experienced high growth rates due to the strong 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, with 4 to 5 vendors controlling half of the market share.
• Product specialization for switches and network security hardware is high, creating greater demand for complex solutions and experienced vendors resulting in higher costs.
• Once established, altering an existing program can be complex and expensive to implement.
   

DEMAND COMMENTARY

• The IT infrastructure services market is experiencing growth due to increasing demand for new technology installations and a robust regulatory framework focused on consumer security.
• Gartner's projections indicate that global server shipments will continue to increase at single-digit rates over the next five years, extending through 2027.
• Statista's forecast predicts a 13.81% annual growth rate in cloud computing revenue for the five-year period leading up to 2027.
• Statista anticipates a 5.79% annual growth rate in server revenue by the year 2027.
• According to Markets and Markets, data centers are expected to grow by 7.5% next year, playing a significant role in emerging technologies.
• Statista reports that revenue in the Network Security sector is expected to exhibit an annual growth rate of 12.06% from 2023 to 2028.
• Many organizations tend to overlook vulnerabilities in their network infrastructure devices, which can result in costs amounting to up to 9% of their annual revenues due to misconfigurations.
   

SUPPLY COMMENTARY

• The supply chain risk is currently moderate for both the cloud computing and computer server markets.
• This assessment is based on factors such as high demand, industry-specific risks, and the volatility observed in the manufacturing of computer and telecom networking equipment.
• The increasing demand for robust and scalable server solutions is driven by the rapid growth in data volumes.
• Manufacturers of servers must consistently innovate to maintain a competitive edge in this market.
• This involves substantial investment in research and development (R&D) to create new technologies, enhance performance, and improve energy efficiency.
• To address concerns surrounding data integrity and privacy, it is crucial to implement robust security measures.
• These measures may include encryption, authentication protocols, and intrusion detection systems.
• The market exhibits a high level of concentration in terms of market share, which limits competition based on pricing.
• The global chip shortage, coupled with sustained high demand for electronics, continues to affect the industry even after the pandemic.
• There is a significant degree of volatility in the prices of semiconductors and aluminum.
   

PRICING SITUATION

• The cost of utilities and average wages is projected to increase in the coming years, albeit at a slower rate than in previous years. This will contribute to the overall rise in IT infrastructure and cloud computing costs.
• We anticipate that pricing for computer servers will decrease in the upcoming years as supply chain issues ease and innovation continues to grow.
• It's essential to thoroughly assess the total cost of ownership, taking into account factors such as integration, installation, and the power requirements of switches. These elements make up half of the benchmark price.
• The pricing for network switches is expected to keep rising due to sustained high demand and increased production costs for suppliers.
• Price fluctuations in the market are influenced by corporate profit margins and the growth of online businesses. This adds complexity to the forecasting process.
   

SUPPLY ANALYSIS

• The IT hosting service and computer server market are characterized by high market concentration, primarily due to the dominance of a few key players.
• More than 50% of the IT hosting services market and 45% of the computer server market are controlled by the top players in these industries.
• Leading companies are forming strategic collaborations and expanding their presence in developing regions to strengthen their position within the market.
• There are limited substitutes for routers, as there are no other available equipment options that perform the same essential functions.
• However, software-defined networking offers an alternative network architecture that allows you to create your own routers, provided you have the necessary hardware infrastructure in place.
• When dealing with more specialized and customized products, buyers have less negotiating power, whether it's for network switches or security equipment.
• To gain leverage, it's advisable to revisit the partner strategy and compete where feasible.
• Additionally, competition from OEMs can also enhance buyers' negotiating power.
• Consider options such as wireless vs. non-wireless but ensure alignment with the overall company strategy.

MARKET OVERVIEW

• Over the past year, we have observed an unusual surge in price increases among software vendors, with many of them implementing substantial year-over-year hikes, even on multiyear contracts. This trend has been pronounced.
• Looking ahead to 2023, it is anticipated that SaaS prices will experience an average increase ranging from 15% to 23%.
• Several factors contribute to this projection, including the need for larger software titles to offset inflationary pressures, ongoing developments and enhancements in artificial intelligence, and the rising costs associated with IT staff.
• This increase in software prices is part of a broader trend Jabil has been monitoring, marked by persistent upward pricing pressure across various software publishers. Inflationary factors play a significant role as well.
• It is worth noting that an increasing number of software publishers are making their products available in public cloud environments.
• This shift signifies a growing trend towards cloud-based solutions and services in the software industry.
   

DEMAND COMMENTARY

• Making the decision to reduce or postpone SaaS commitments until 2024 could have a significant impact on business expenses, leading to an estimated 25% increase in SaaS costs by the year 2026.
• It's crucial to consider the long-term financial implications of delaying implementation decisions.
• As we look ahead to 2025, it is expected that approximately 50% of organizations will find themselves compelled to convert their subscription or support agreements into single-year contracts.
• These contracts may come with annual adjustment rates of 8% or more, reflecting the evolving dynamics of the SaaS market.
• Furthermore, by the year 2026, around half of enterprise applications are anticipated to take a new approach by separating support services from existing subscription and maintenance costs.
• This strategic shift aims to generate additional revenue streams while mitigating existing maintenance expenses.
• In the same vein, as we approach 2025, an increasing number of enterprises, roughly 30%, are expected to assert their demand for SaaS vendors to provide dedicated licenses and consumption specialists.
• These specialists will play a crucial role in managing resource utilization efficiently, reducing waste, and ensuring that businesses get optimal value from their SaaS investments.
   

SUPPLY COMMENTARY

• In September 2022, Adobe made a strategic move by proposing an acquisition of Figma.
• However, it's worth noting that this acquisition has come under the scrutiny of antitrust authorities both in the United States and Europe, indicating the potential impact it could have on the competitive landscape.
• Another notable acquisition is Silver Lake's $12.5 billion investment in Qualtrics, a prominent player in the realm of user experience who were previously owned by SAP.
• Thomas Bravo also made waves in the industry with their substantial $8 billion deal for Coupa Software, reflecting continued dynamism in the tech acquisition landscape.
• According to a survey released in November 2022 by the law firm Morrison Foerster, a significant majority of private equity firms, specifically 80%, along with 71% of corporate entities, anticipate a rise in tech M&A deal volumes within the coming year.
• The survey findings reveal that the most sought-after market sector for deals is expected to be artificial intelligence (AI), as indicated by 51% of respondents.
• This marks a substantial increase from the mere 3% recorded in the previous year.
• Additionally, while cloud technology remains a prominent contender, with 31% expressing a preference for it, this figure represents a decline from the 54% favorability observed in the preceding year.
• These survey results shed light on the shifting dynamics and outlook within the tech M&A landscape. 
   

PRICING SITUATION

• Software suppliers are increasingly raising prices across all categories.
• Salesforce has announced an average price increase of 9% across various product lines, including Sales Cloud, Service Cloud, Marketing Cloud, Industries, and Tableau.
• The new list prices will take effect globally in August 2023 for both new customers and existing customers purchasing new clouds.
• For reference, the new list prices will be as follows:
  • Professional Edition: $80 USD (up by $5)
  • Enterprise Edition: $165 USD (up by $15)
  • Unlimited Edition: $330 USD (up by $30)
  • These editions will be priced comparably in other currencies.
• It's advisable to protect your critical applications by evaluating the viability of third-party support, especially when software vendors attempt to transition your existing embedded offerings to new support options.
• To ensure that you obtain optimized pricing, the utilization of third-party assessments of software pricing is gaining momentum and is considered a best practice in the industry.
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​​​​​​​SUPPLY ANALYSIS

• We anticipate an abundance of supply in the software technology sector to persist for the foreseeable future, especially within the next 12 months.
• In terms of market data:
  • The market size value in 2022 was $474.61 billion USD.
  • The revenue forecast for 2030 is projected to reach $1,153.7 billion USD.
• Economic challenges are driving software vendors to adopt aggressive revenue tactics. These tactics range from informal and formal software license audits to unwarranted price increases.
• Expect this behavior to intensify, especially from vendors approaching their fiscal year-ends. If you have upcoming purchases or renewals with any of these vendors, it's advisable to prepare in advance.
• Key dates for vendor activities include:
  • 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.
• The availability of publications in cloud applications is on the rise, and this trend is expected to continue in the foreseeable future.
• The emergence of new players in cloud optimization and cloud security is expanding the range of supply options while maintaining a favorable return on investment (ROI).

MARKET OVERVIEW

• During the second quarter of 2023, the Global PC Market experienced a continued decline in shipments, registering a significant drop of -13%, equivalent to 61 million units.
• This decline marks the sixth consecutive quarter of double-digit annual decreases, according to data from the International Data Corporation (IDC).
• A primary focus for channels during this period has been to expedite the clearance of existing inventory. This urgency stems from persistently weak demand, which has endured since the conclusion of a lacklustre holiday season in 2022.
• Notably, the soft demand trend is pervasive across all customer segments, affecting both consumers and businesses.
• This caution in expenditure is influenced by the ongoing global increase in interest rates, with governments prioritizing efforts to reduce inflation.
• Analysts anticipate a gradual recovery in the latter half of the year, with momentum expected to gather further in 2024.
• Despite these challenging factors, several positive developments are on the horizon.
• 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.
   

DEMAND COMMENTARY

• Over the past few months, macroeconomic conditions have remained largely unchanged or, in some areas, have worsened. Consequently, IDC has adjusted its demand forecast for this year, with a downward revision.
• 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 focusing on optimizing their 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 from July of this year has significant implications. Companies will be required to migrate to Windows 11 and adopt SSD (Solid State Drive) technology. This mandate is likely to 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.
   

SUPPLY COMMENTARY

• As of 2023, the supply of high-end semiconductors used in computers, smartphones, and tablets has returned to normal, marking a significant easing of the previously experienced shortage.
• Channel partners currently maintain a surplus of stock, providing greater flexibility to accommodate any sudden drops in demand.
• 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 pose potential supply risks, particularly between the United States and China, such as those which surfaced due to high-altitude balloon surveillance.
• In a move aimed at boosting domestic manufacturing, India has implemented restrictions on the import of computers and laptops, originally set to take effect in August.
• However, this decision has been postponed until October 31st, allowing businesses in India more time to plan and mitigate potential disruptions caused by this import restriction.
• It is advisable for businesses operating in India to prepare accordingly.
   

PRICING SITUATION

• Price fluctuations in the market are driven by several factors, including:
  • Volatility in key 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 to contribute to price fluctuations throughout the current year.
• The market exhibits a high level of concentration, with the top four manufacturers holding control 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 the establishment of favorable discount structures.
• Moreover, exploring options like leasing and rental, often referred to as "Device as a Service," can provide leverage in negotiations.
• 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.
• This approach helps control costs and enhances the availability of supply.
• While certain components experienced shortages in the past, some have now transitioned into a surplus due to overproduction.
• For example, memory prices have been on a downtrend.
• This trend is expected to continue throughout the year. Buyers are encouraged to take advantage of this opportunity for strategic planning and procurement.
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SUPPLY ANALYSIS

• Hardware lead times have returned to pre-pandemic levels, with the average lead time from the factory for both 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, it is advisable to plan demand based on forecasts and establish safety stock through leasing or participation in a Device as a Service program.
• Refurbished PCs offer an alternative solution to address fluctuations in demand or support expansion efforts. Additionally, opting for refurbished PCs contributes to enhancing supply chain sustainability.
• Notably, the top three manufacturers, namely Lenovo, HP, and Dell, collectively accounted for over 70% of total shipments in Q2 2023. This data highlights the significant market presence and influence of these key players in the industry.