The IT sector has been growing moderately in recent years. As companies have invested heavily in technology to automate their operations and reduce their labor costs, many of the service markets in this category have seen their profit levels rise during the past three years. However, some of the product markets in the IT sector have begun to experience declining sales due to the growing popularity of substitutes.
IT Hardware Price Trends
- Prices for IT hardware products are mostly trending in a downward direction
- This price decline is largely attributable to the falling cost of semiconductors and electronic components, which are key inputs in IT hardware manufacture
- Semiconductor and electronic component prices have been falling due to import penetration and increasing manufacturing efficiency
- The increasing availability of substitutes has also caused prices to fall in some markets, such as desktop computers, laptop computers, network attached storage devices and phone and video conference equipment
Key Takeaway: Because the price of IT hardware is falling, buyers can take time to evaluate a wide range of vendors without risking sudden price spikes, which can increase their leverage during negotiations.
IT Service Price Trends
- The prices of IT services are increasing, including data center services, database management systems, internet services, IT hosting services, IT support services and IT systems integration services
- These price increases are largely due to a rise in the percentage of services conducted online, which is growing in line with the number of broadband connections used by businesses and consumers
- As more services are conducted online, demand for IT services is expected to continue growing, pushing service prices upward
Key Takeaway: Buyers will benefit by locking in multiyear contracts at lower rates because service prices are expected to increase in the coming years.
- Most markets in the IT sector are highly concentrated with the top four providers generating more than 50.0% of total revenue
- Certain IT hardware markets that currently have a low level of concentration are consolidating due to falling revenue and profit margins
- However, market share concentration overall is expected to decrease in most IT markets during the three years to 2021, as new entrants initiate operations
Key Takeaway: Buyers often cannot leverage the availability of multiple providers because concentration is high in so many IT markets. Therefore, they will benefit from leveraging other market characteristics, such as low to moderate switching costs and the availability of substitutes.
ProcurementIQ projects that during the three years to 2021 the price of IT hardware will continue to decline in line with falling manufacturing costs and increasing options for substitutes. As semiconductor prices trend downward and new technology becomes available, providers are expected to reduce product prices to bolster sales volume. At the same time, however, the prices of IT services are expected to rise with demand, spurred on largely by growing internet usage. Fortunately for buyers, market share concentration is expected to decrease as new providers initiate operations, which will potentially increase their negotiating leverage.