Falling dollar forces vendor price hike

The seemingly never-ending slide of the Australian dollar is starting to take its toll on the industry, with a rash of vendors announcing they will be forced to increase their collective prices.

A number of US-based vendors have been absorbing the cost of the falling dollar for some time, but have finally yielded to economic pressure. Meanwhile, the channel appears to be resigned to what many see as "the inevitable".

Microsoft has been one of the first cabs off the rank, announcing a substantial price hike to come into effect from December 1. Citing the pricing differential for its business application tools, operating systems, server software and development tools as no longer sustainable, the software giant will increase prices by 10 to 18 per cent. The price increases have been calculated individually on reseller margins.

"The net dollar margin to resellers will be maintained or improved," assured Microsoft's director of enterprise and solutions marketing, Alison Dodd.

Excluding GST increases, it has been two years since Microsoft's last price increases, when the dollar's value slid from 84 to 65 cents. "Looking at that from a long-term perspective, sustaining prices based on 65 cents is no longer viable," Dodd said.

However, the company will wear the cost on existing consumer, reference and games products purchased through retail channels over the Christmas season. The price rise will not come into effect for these products until January 1.

"Most customers have been expecting the announcement - it was more a matter of when," Dodd said, adding that many companies billed in US dollars and were already passing the value of the dollar's fluctuations through the channel.

Microsoft has passed on two-thirds of the cost of appreciation and is hedging that the dollar may regain some value over the short to medium term. One thing is for certain; it won't be two years before the next price adjustment, Dodd said.

Microsoft must legally give its partners warning on 30- to 45-day terms of price changes one way or the other.

Cisco has followed suit, confirming it too would bump up prices across the entire range of its networking products. A company spokesperson confirmed that the vendor has informed its distribution and reseller partners of a 3.9 per cent increase, which came into effect on 29 October.

"The important thing to note is that this is the first time in 12 months Cisco has raised its prices and if you look at what per cent the dollar has dropped in that time in comparison to how much we've raised our prices, there is an obvious discrepancy there," the spokesperson said.

"Cisco could no longer absorb the cost of a declining currency," he added.

The spokesperson also assured Cisco's service and support will remain at its existing pricing structure. Unconfirmed reports suggest Cisco had pegged its Australian prices at the exchange rate of 68 cents to the US dollar, before making the decision in September to raise its prices.

Nick Verykios, MD of Cisco distributor LAN Systems, was quick to point out that while Cisco's pricing is in Australian dollars, and therefore subject to a formal price increase, a number of vendors quote prices directly in US figures, which, as such, are constantly fluctuating in line with the exchange rate. "They're not going to make the end user suffer for it," Verykios said. "They're not doing anything that others haven't been doing."

According to Martin Hoegh-Guldberg, business development manager for Cisco Gold Partner Com Tech Communications, Cisco's price rise is not likely to affect Com Tech as much as it might other channel companies.

"We're not a box mover," said Hoegh-Guldberg, who claimed the company's services revenues equate to a more significant percentage of the company's revenues than margins made on product. However, Hoegh-Guldberg was unable to confirm or deny any price increase would be passed on to customers.

Fellow networking vendor Cabletron also joined the party last week when it began escalating the prices of its product range.

Cabletron gave a month's notice to its distributor and reseller partners before pegging its pricing at 55 US cents for every dollar, down from 58 cents, said Ian Fewtrell, managing director of Cabletron.

Further price rises from other vendors and distributors appear inevitable. The only questions are who and when?

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