Prices rise as IT spending trends upward for servers, storage
IT prices increased in December across four key commodities -- a pattern that coincides with a revival in demand for servers and storage following a 2023 drop.
While the U.S. government's index of wholesale prices declined for the third consecutive month in December, IT commodities countered that trend with month-over-month increases.
Servers led the price increases with a 1% month-over-month increase last month, according to the Producer Price Index (PPI), released last week. Data storage increased 0.1%, with December the fourth consecutive month of price increases in that technology category. The increases come amid IT spending trends featuring rising demand for servers and storage following a slump in 2023.
Data processing and related services, including cloud computing, saw a 0.5% increase, continuing a pattern of price increases that began more than a year ago. Professional services increased 0.3% on a month-over-month basis.
The PPI, overall, dropped 0.1% in December, following a 0.1% decrease in November and a 0.4% decrease in October.
Executives cite inflation as key concern
Amid the IT price increases, two reports show inflation is much on the minds of senior executives:
C-suite executives surveyed by The Conference Board cited inflation as their No. 2 external concern for 2024, trailing only recession. The think tank, which published the data last week, polled 1,247 executives worldwide.
Forty-one percent of the CEOs surveyed by AlixPartners pointed to interest rate instability and the inflationary environment as a threat. The New York City-based consulting firm polled more than 3,000 senior executives worldwide for its annual Disruption Index, released last week.
But despite macroeconomic concerns, 56% of the business leaders polled by Capgemini are optimistic about their companies' 2024 outlook. That percentage compares with 42% expressing optimism in the consulting firm's 2023 survey. Capgemini, which published its research this week, surveyed business leaders from 2,000 organizations in 15 countries for the report.
Even with uncertain market conditions and "persistent inflation," most executives "are confident of their organization's ability to navigate through these disruptions," the Capgemini report read.
All four IT commodity categories showed month-over-month price increases in December.
Server, storage demand rises
The increase in server and storage prices coincides with increasing enterprise demand. Bloomberg Intelligence cited servers as ranking among the top spending priorities for businesses in 2024. The market researcher's Enterprise B2B Tech Survey claimed "server sales are on pace to stabilize and grow by mid-2024 following 4-6 quarters of sharp declines."
AI server sales will contribute to that growth. Bloomberg Intelligence reported in a survey that 41% of the CIOs it polled said a 20% to 60% slice of their server spend will be earmarked for AI servers. The market researcher attributed the spending to enterprises scaling AI pilots.
"Not every company deploys things on the cloud," said Mandeep Singh, senior consumer and technology analyst at Bloomberg Intelligence. "I imagine companies that want to deploy generative AI across their own software or internal systems would want to use their internal AI servers."
The Bloomberg Intelligence survey also suggested a revival of server storage demand following last year's industrywide slump. "Demand for solid state drives could grow, which could fuel the need for equipment used to make next-generation 3D NAND," according to the survey.
As demand recovers, prices have also begun to rise. Storage industry analysts have reported an increase in NAND flash prices, which account for a considerable share of hardware storage systems costs.
Cloud inflation continues
As cloud prices continue to rise, some market watchers point to SaaS as one source of the increase. Vertice, a company that provides a cloud and SaaS cost optimization platform, reported last year that SaaS shrinkflation affected 28% of businesses. With shrinkflation, vendors charge the same fee for a reduced set of functionality.
I imagine companies that want to deploy generative AI across their own software or internal systems would want to use their internal AI servers.
Mandeep SinghSenior consumer and technology analyst, Bloomberg Intelligence
Subscription-based cloud services are "getting to the point where you are getting less and less features and value and paying more and more," said Eric Helmer, CTO at Rimini Street, a Las Vegas company that provides enterprise software support, products and services. "That will cause concerns for almost anybody in the world of ERP."
Helmer said the subscription-based model puts vendors "100% in the driver's seat" in that they can control prices and "lock people in." As a result, cost unpredictability has become a huge concern for CIOs, he added.
The increasing cost of cloud "forces CIOs to reduce other areas of the budget" that could otherwise fund AI and other innovation projects, Helmer said.
John Moore is a writer for TechTarget Editorial covering the CIO role, economic trends and the IT services industry.
