Technology

How the global chip shortage and supply difficulties are driving price inflation

How the global chip shortage and supply difficulties are driving price inflation

Your computer hardware is going to become more expensive due to component shortages, supply chain difficulties, and a spike in demand.

Cisco Systems’ third quarter results bear witness to this. Business is a good indicator of IT demand and, in general, an early indicator of what other technology vendors will see in the coming months. Gartner has forecast that the global semiconductor shortage will last until the second quarter of 2022.

Keep in mind the comments of Cisco CEO Chuck Robbins as Dell Technologies, Lenovo and Hewlett Packard Enterprise will all release their results next week. Component inflation is real, and companies could speed up their IT purchases to keep up with rising prices.

While Cisco’s quarter was strong, inflation concerns weighed on the company’s outlook. Cisco forecasts revenue growth of 6% to 8% in the fourth quarter, with non-GAAP gross margins of 64% to 65%.

Cisco executives said the company has locked down supply and pricing with component manufacturers, but shortages will be an issue until the end of 2021. Mr. Robbins also acknowledged that chain issues supply could drive up prices amid strong demand for networking software and face-to-face return to work. Robbins said:

What we do know is that if we come to the conclusion that either of these cost increases or inflation is going to continue, we will consider price increases. It will be pretty obvious that if a customer has extended delivery times, they will likely place their order earlier than expected. It’s logic.

Mr. Robbins then detailed his position on the price increases.

On the price front, I think we’ve made some decisions on some products that we’re going to do price increases for, and we’re surgically looking at the rest of the portfolio based on the costs that we think are going to be sustained. . But we are currently working to take care of our customers and try to optimize our ability to provide them with products now.

Indeed, Cisco is No.1 in Gartner’s supply chain ranking for 2021.

Cisco is seeing industries like hospitality rebound, strong demand for 5G networking hardware, and multi-cloud deployments. Combined with security technologies and software like WebEx, Cisco is seeing demand spike just as the cost of components skyrockets. “If we hadn’t had to deal with supply chain challenges, we might have been moving towards higher incomes,” Robbins said.

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Last month, enterprise technology vendors reported supply chain shortages and issues, but did not predict a margin decline or price increase. For example, Juniper Networks CEO Rami Rahim said the company has long-term price contracts. However, Juniper, which has said it is working to strengthen its supply chain, maintained its gross margin target of 60% for the full year.

On May 4, Arista also reported on supply chain issues during its first quarter earnings conference call. Arista CEO Jayshree Ullal said:

The supply chain has never been so constrained in Arista’s history. To put that into perspective, we now need to schedule a lot of components with 52 week lead times. COVID has resulted in shortages and reduced assembly capacity. Our contract manufacturers have experienced significant volatility due to country-specific COVID orders. Naturally, we are working more closely with our strategic suppliers to improve planning and delivery.

However, demand and customer visibility have improved in recent months. We work with our customers to understand the timing of their deployment needs. We don’t currently believe our customers are pre-ordering. However, we believe they are planning cautiously for the second half of 2021 and even for 2022. In this context, we believe that the supply chain will remain a sore spot for the rest of the year due to all of these. shortages.

Source: “.com”

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