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Storage, server prices drop as inflation eases

Server and storage prices declined in June, reflecting cooling inflation, but companies remain intent on containing costs and optimization.

Hardware costs dropped sharply in June, according to the U.S. government's latest wholesale pricing data, with storage and server prices returning to levels not seen since 2021.

The Bureau of Labor Statistics' (BLS) Producer Price Index (PPI), released today, showed a 3.1% month-over-month decline in the cost of host computers and servers. Computer storage, meanwhile, declined 2.3% compared with May. The downward pattern in 2023 follows an uptick in storage pricing in the fourth quarter of 2022.

Overall, the PPI increased 0.1% month over month and 0.1% year over year. BLS said the index's increase for the 12 months ending in June was the lowest reading since September 2020.

The easing of tech inflation suggests that conditions such as improving chip inventories have begun to influence pricing. Gartner earlier this year forecast that semiconductor supplies will reach "severe surplus" territory in Q2 2023 and stay there for the remainder of the year.

IT services costs up slightly

While hardware prices declined, IT services showed slight increases in June, with professional services edging up 0.1%. Professional services pricing trended upward in 2022, reflecting increasing labor costs.

Data processing, hosting and related services -- a category that includes cloud computing -- increased 0.4%, according to BLS data. Cloud costs have steadily increased since September 2022 amid increasing labor and energy costs.

Bar graph showing inflation trends across three IT commodities for June 2023.
Pricing declined in hardware categories, but showed a slight uptick in IT services.

Cost optimization persists

The pricing trends, on the whole, appear to be on a favorable track. But corporate buyers are still looking to optimize, even as inflation cools and some market observers question the inevitability of a recession. Deloitte's "2023 Global Chief Procurement Officer (CPO) Survey," published earlier this month, ranked "driving operational efficiency" as the top priority for the second consecutive CPO poll.

The survey findings reveal continued focus on the desire for these efficiencies, plus a more recent need to rein in costs amid higher inflation and slowing demand in many industries.
Ryan FlynnPrincipal, supply chain and network operations, Deloitte Consulting

Ryan Flynn, principal, supply chain and network operations at Deloitte Consulting, said the focus on operational efficiency was first apparent in the company's 2021 CPO survey. At the time, the emphasis was largely down to the pandemic and the need to do more with less. The 2023 survey uncovered a somewhat different pattern.

"The survey findings reveal continued focus on the desire for these efficiencies, plus a more recent need to rein in costs amid higher inflation and slowing demand in many industries," Flynn said. The pursuit of cost reduction won't be limited to procurement, he added, noting that many companies aim to trim expenses across the organization.

Looking ahead, Flynn said he expects operational efficiency to remain a priority, along with new areas of emphasis such as digital transformation, enhancing environmental, social and governance initiatives, and reducing costs.

Jennifer Colapietro, cloud and digital transformation partner at PwC, also expects to see a continuing focus on optimization. 

"Regardless of market indicators, most tech leaders are working with tighter budgets now, and they may be grappling with reduced spend," she said.

Against that backdrop, CIOs are doubling down on tech spending optimization, focusing on dual digital transformation agendas, Colapietro said. That is, CIOs in the second half of 2023 will look to capture efficiencies by lowering costs and boosting margins, while also emphasizing "effectiveness plays" that drive tangible results in shorter timeframes,  she noted.

Cloud, with the backing of data and analytics, will serve as a key ingredient for success in those initiatives, Colapietro said.

John Moore is a writer for TechTarget Editorial covering the CIO role, economic trends and the IT services industry.

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