Technical data

Tech costs rise as inflation hits hardware and services

Inflation affects IT budgets, driving cost increases in areas such as servers, storage, and professional services. The environment appears to be accelerating enterprises’ transition to the cloud, which is expected to increase by more than 20% in 2022.

Producer Price Index (PPI) data, which tracks prices paid to producers of goods and services, shows a sharp year-over-year price increase for host computers and servers – a 21% increase from price levels in June 2021. The Department Labour’s PPI update, released on July 14, also shows a 4.7% price increase for computer storage devices and a 2% increase for professional services, IT technical support and consulting services.

CIOs cited rising technology costs among their top challenges for 2022, along with IT skills shortages and infrastructure changes needed to accommodate returning employees.

Rising prices, however, are not necessarily hampering the CIO’s investment plans, according to Gartner, which recently updated its projections for the global IT market. Market research predicts that IT spending will grow 3% in 2022 from last year, to $4.5 trillion. Gartner’s latest spending projection is in line with its forecast published in January 2022.

But one inflation-related shift is a push toward cloud spending, which Gartner expects to grow 22.1% in 2022. Gartner cited price increases and delivery uncertainty, compounded by the invasion of Ukraine by Russia, as accelerating the transition of CIO buying models from IT assets. property as a service.

Rising prices for on-premises equipment appear to be contributing to the move to the cloud. In the case of servers, inflationary pressure stems, at least in part, from chipset shortages that have affected a product line. “We all know that the chipset market has been squeezed in almost every form, whether it’s automotive or server,” said Robert Naegle, vice president analyst at Gartner.

The hardware supply chain also includes the inert gases needed to manufacture semiconductors, Naegle noted. Ukraine is a key supplier of these gases, adding another wrinkle to a complex and fragile supply chain, which continues to feel the effects of COVID-19. “Inflation is just the next phase of the supply chain challenge,” he said.

With hardware, CIOs can defer spending and extend the use of existing IT resources, Naegle noted. That’s not quite the case for services, however, where many CIOs have to turn to consultants and MSPs to supplement in-house staff. Earlier this year, Gartner predicted higher IT service rates in 2022 as business demand increases and vendors raise salaries to combat attrition.

PPI data confirms the upward trend in services prices, with the latest figures showing price growth of 0.67% month-on-month in June.

An interesting wrinkle in the PPI data is that server and storage inflation showed signs of slowing in June. Server prices fell 1.2% month-over-month, reversing the steady upward price trend since September 2021. Storage prices fell 0.42%. The coming months will show whether the price declines are a jolt highlighting economic volatility or the start of a downward price trend.

In the meantime, CIOs should use inflation as an opening to more rigorously scrutinize their tech spending. Naegle said CIOs should critically assess the spend they’re requesting, optimize the assets they already have, and align IT investments with business outcomes.

“What I think this period really represents is an opportunity for many IT organizations to fine-tune their operations and more aggressively ask themselves, ‘Are we doing the right kind of things?'” noted Naegle.