The COVID-19 pandemic continues to sweep across the globe. Enforcement of social distancing practices worldwide has led to a gradual reduction of reported cases of the Coronavirus. What initiated in China then progressed across Asia, Europe and eventually the Americas, has left in its wake a social dislocation not seen in a century. We have seen a cascade of measures to stem the rising tide of the spread of COVID-19. The pre-emptive orders to “stay at home” are beginning to show its impact not only on declining reported cases but also within the global supply chain. Global manufacturing has been hit hard by shuttered factories. A spike in demand for both enterprise and personal compute products has put an incredible strain on the IT supply chain.
When the virus began its world wide migration, we saw an upturn in sales of personal computer devices in the impacted regions. Companies faced with a dispersed work force were clamoring to supply this workforce with laptops and peripherals. Organizations were tasked with enabling an infrastructure to support an unprecedented number of work from home employees. These same organizations also turned to cloud providers to quickly implement the infrastructure necessary to support these remote workers. The hyper-scalers were forced to expand their infrastructures to accommodate this additional workload. The rush for server platforms was on.
Four months into this global pandemic, we are seeing the results of closed manufacturing and a spike in demand for enterprise hardware. An indication of what was to come was first seen in financial forecasts from major players in the enterprise space. Companies such as Dell Technologies, Nvidia, SK Hynix, Xilinx, Micron, Broadcom and many others have postponed forecasts for the remainder of 2020. The postponement of these routine forecasts underscores the volatility that the global IT manufacturers are facing. While it is broadly anticipated that cell phone purchases will drop during this time, an increase in products like gaming consoles and 5G infrastructure components will put more pressure on the IT supply chain.
Dell Technologies has announced a potential for elongated deliveries for enterprise orders. This is based on part shortages required to deliver enterprise storage and servers. Nutanix announced this week that tightening supplies will affect pricing in the near term. The supply side is becoming a very competitive battle ground as part shortages are starting to appear since manufacturing in Asia had been paused for nearly two months. A widely adopted “just in time delivery” inventory control policy used by many manufacturers has exasperated this issue. Major vendors in storage and servers are depleting parts inventories on hand and are nearing the stage where they need replenishment.
A second issue facing enterprise customers is a lack of revenue to fund new purchases. Recognizing a need in the market place, Dell Technologies, HPE and Cisco have all initiated new financing options for potential customers, which offers extended terms on purchases. IDC, in a report released on March 27th, 2020, predicted the impact from COVID-19 will be substantial but short term. Q2 and Q3, 2020 will be the brunt of the delays and increased prices. Q3 poses an interesting scenario as school districts begin preparation for the new school year. Critical decisions still need to be made if students will return to the classroom in the fall or if they will continue to learn remotely. A decision to continue remote education will trigger another burst of activity that will impact the hyper-scalers and end user product lines. The final quarter of 2020 we will see a more traditional relationship of sales and delivery.
Perhaps the far-reaching impact of COVID-19 will be an acceleration of companies choosing a consumable model for IT services and infrastructure. In a time of interrupted supply chains and uncertain costs structure, cloud services are proving to be an optimal solution. COVID-19 has certainly injected a level of uncertainty into the business ecosystem from manufacturer to end-user. However, as previously experienced in the Dot Com bust of 2001 and again in the recession of 2008-09, these conditions are only temporary. Supply and demand will equalize in the coming months as manufacturers ramp up output and prices will moderate which are all positive steps as we navigate a new normal in the workplace.
If you have any questions regarding current or planned projects, keeping orders on track, specialized financing or navigating the effects of the current supply chain environment, please reach out to your Sanity rep or contact us today.