Storage Disruption Elements Like Flash Array and SDS Negative - IDC

As the euro and dollar almost reach parity, coping with exchange rate fluctuations is turning into a major challenge for the IT industry.

Components purchases are usually in dollars and consequently all hardware manufacturers have to face the strong currency volatility seen in the recent months. This results in vendors and resellers accepting revenue losses in dollars in some cases, while customers have to bear the brunt of price increases.

The channel tried to limit its exposure or delay the impact, but this actually added pressure to margins. Reducing current market difficulties to currency impact would be an error, however, as the effect of exchange rates is only one of the factors affecting the IT market and should be taken in context with other trends in each technology area.

International Data Corp. has been looking into the impact of the exchange rate
on PCs, servers, and storage, and it has clearly emerged that:

Server price increases in euros have been considerably more drastic than those for storage and PCs
Technology factors such as storage disruption elements like flash and SDS were negative
Enriching server configurations plays a role in setting the price trends upwards for many players
The promotion of Bing on the PC side concealed increases on other devices

The €/$ currency fluctuation is adding volatility in the datacenter market. The impact on dollar earnings and revenue of U.S.-based companies has been significant in 4Q14-1Q15. Server and storage markets in Western Europe have absorbed that differently.

“The Western European x86 Server market has seen a 14% increase in ASPs in dollar terms, but prices declined in the channel at the same time. Major x86 server vendors executed several price adjustments in local currency (euros or others) to maintain dollar profitability,” said Andreas Olah, senior research analyst, European servers and infrastructure solutions. “While the shift towards higher-end models continues to drive increases in overall ASPs, this trend is expected to slow down as Asian ODMs are pushing onto the European market and are likely to increase price competition at the lower end, and reach into the channel.”

“Meanwhile $/GB values in the Western European Disk Storage market deteriorated during the first quarter of 2015, declining 17% year over year owing to factors such as currency devaluation and increased competition in the upper mid-range to the high end. In particular, we have seen high levels of price competition in the all-flash array market,” said Jimena Sisa, senior research analyst, European storage and infrastructure solutions. “Looking ahead, IDC expects that combined server/storage spending in WE in 2015 will be 14.0 billion in euro terms, with long-term growth remaining modestly positive.“

Looking at the top 5 models sold in Western Europe in 1Q15, the rise in server ASPs in euro terms is more notable than for the top 5 storage models. This indicates that channel partners and vendors are more active in monitoring and adjusting their pricing for competitive server models than on the storage side. Price adjustments for storage models are also affected by the rise of flash, which drives overall ASPs down, balancing out currency impacts more than on the server side, where high-end models are prevalent.

Currency fluctuation created similar volatility on the PC market, but in a context of market consolidation and leadership battles the different actors have been more cautious in increasing prices.

“Overall the PC market in Western Europe reacted with delay to the euro’s weakness,” said Chrystelle Labesque, associate director, IDC EMEA personal computing. “A longer supply chain for some vendors as well as high inventory created a buffer for couple of months. But looking at 1Q15, the rise of the dollar created an impression that average prices were moving more towards the lower price band when in fact the market’s value was stable or even slightly increasing in euro terms. Our expectations for the second and third quarters of this year include further euro price increases, which will have a negative impact on demand.”

For 2015, the market is expected to slow down in unit terms and be stable in euro values as other devices are adopted by consumers and enterprise, while the life cycle of existing devices continues to expand.

For more details, IDC published two documents: