Doing a Large-Volume PC Refresh in 2017? Start Here.

By Kristian Tuinzing

Client Services Manager, NPI

May 05, 2017

With the first quarter of 2017 behind us, the PC market continues to be ripe with advantages for both buyers and vendors. Analysts offer differing estimates on whether overall PC shipments increased or declined in 2016 – but all estimates of the change year-over-year are nominal. Analyst group IDC reported that PC shipments actually gained 0.6% in the first quarter of 2016, which represents the first year-over-year increase since 2012. Collectively, all reports hint at stabilization after the significant declines in shipments in previous years.

One thing analysts don’t disagree on is the role of businesses in keeping the PC industry afloat. Consumer demand is abysmal. That’s good news for enterprises as the major OEMs continue to vie for market share, often undercutting the pricing of other suppliers if they know they can steal the business.

These market conditions would create a competitive atmosphere on their own, but at the same time many internal IT departments are being tasked with refreshing aging assets to capitalize on new technology. These new technologies include solid-state disk drives (SSDs), shifting standards in memory, new display formats like OLED, and the proliferation of alternative devices like thin clients or tablets. All of this adds several layers to the onion of PC pricing as industry-wide changes take hold.

As noted earlier, PC shipments worldwide have been – for the most part – declining precipitously since 2012. So, it’s telling that some vendors are actually increasing earnings in this area. For example, the total revenue of HP’s Personal Systems division (comprised of Notebook, Desktop, and Workstation PCs) dropped 5% from $31.52B in 2015 to $29.98B in 2016. Yet, despite this noticeable drop, the net earnings from this segment’s revenue increased 12.5% from $1.02B in 2015 to $1.15B in 2016! How is this possible? HP’s 10K for fiscal 2016 states it plainly:

“The increase was primarily due to growth in gross margin driven by favorable commodity costs combined with product mix and increase in PC services.”

This sentiment is repeated at the other top OEMs like Lenovo and Dell: if unit volumes decrease then we need to make more money on what we are selling. Slowing markets demand innovation from sales teams as they keep up with investor expectations – and that “innovation” often takes the form of higher pricing. NPI sees these inflated prices and their effect on businesses frequently, at times leading to overspending.

Companies would be well served to examine how this has played out in the public sector. A recent audit of the U.S. Department of Energy showed the agency had paid more than 40 different prices for the same desktop model, at times paying double or more for the same assets. Findings like this led to major changes to the way government agencies purchase PCs and highlights the scale of an issue still prevalent in the private sector.

Complicating matters is the fact that negotiating PC deals can be a laborious process requiring significant person-hours for research and price comparison. Without a proven game plan these efforts may go to waste. For companies embarking on a PC refresh in 2017, we recommend assessing spend, performing benchmark analysis to identify savings opportunities, and laying out the expected effort to close gaps.

Asking internal inspection questions can also help start the right conversations and promote internal alignment across all stakeholders. Some questions to ponder:

  • How much does it cost to buy piecemeal versus larger, bulk purchases? How much money is left on the table or saved based on your buying habits?
  • Are you purchasing accessories like monitors or docking stations to go with PC pricing? Do you know how accessory pricing measures up to pricing extended on adjoining PCs?
  • What kind of script does your vendor or reseller sales representative stick to? Do they speak in plain language related to the commodities you’re buying, or do they emphasize performance gains while obscuring how they’re arriving at a quoted price?
  • How many different configurations in each asset category do you buy?
  • Has the supplier offered transparency into what it would cost to add memory/storage capacity or upgrade CPUs?

These questions serve as a good litmus test. The answers (or lack thereof) can help begin guiding efforts and building priorities as you approach PC spending from a different angle. The top 3 vendors (Lenovo, HP and Dell) continue to position themselves to steal business from the others, and with the next three vendors (Apple, Asus and Acer) vying for a piece of the pie too, the pressure is on. With this sort of embattled playing field, many companies are getting extremely low prices for PC purchases. For those that aren’t, even a slight improvement in pricing can produce dramatic savings when you’re buying in large volumes. No matter what happens to PC demand in 2017, the vendors aren’t likely to stop trying to squeeze more margins out of what should be a commoditized space.