Dell Technologies Raising Systems Prices In Face Of Deepening Memory, SSD Shortages

Sharply rising memory and SSD costs have prompted Dell Technologies PC and server price increases.

In a conference call to discuss Dell Technologies' earnings for its fiscal first quarter ended May 5, CFO Tom Sweet said the company anticipates rising costs as a result of ongoing memory and SSD shortages to persist for the remainder of the year. Memory prices have doubled, Sweet said, and SSD prices have increased about 20 percent since shortages took hold late last year.

Solution providers are fighting the battle on two fronts. Along with price increases, the shortages have in some cases tripled lead times, said Scott Winslow, president of the Winslow Technology Group, a Waltham, Mass.-based solution provider that works with Dell EMC.

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Winslow said vendors have increased prices between five percent and 10 percent. For partners, though, that doesn't necessarily manifest as a straight price increase. "It's not like an official pricing change," Winslow said. "It's in how you're negotiating with OEMs. Maybe you negotiated a certain discount before, and now it's less."

Shortage-related shipping delays add even more pressure to the situation, Winslow said, but they also give partners an opportunity to accelerate order placements, he said. "We've seen impacts with lead times, and we're telling our sales team to use it as a way to get to orders sooner. If a customer typically buys at the end of the year, let them know it's not a 30-day lead time. It's 60 or even 90, and get them to reorganize their thinking and get orders done in June or July. It accelerates the selling motion."

Dell EMC infrastructure chief David Goulden said the company is trying to strike a balance between the need to raise prices and the need to keep Dell EMC's server business growing.

"Customers don't like to pay more," Goulden said. "They expect decreases on a sequential basis. For existing contracts, we can go back to customers and talk about raising prices. For new orders it's about finding the right balance of raising prices while maintaining momentum. There will be a point at which costs stabilize, and things go back to normal. A certain amount of the price increases will stick, others will not. It's not a precise science."

The same is true for the ultra-competitive PC market, Sweet said, where Dell is moving prices up, limiting salespeople's pricing authority and making doubly sure the company and its partners are configuring exactly the right solutions for customers' needs. "It’s a variety of actions," Sweet said. "We're doing pricing adjustment while not wanting to stall demand. The last thing we want to do is shut that spigot off."

The industry had expected the shortages and price increases to temper customers' demand for memory, but the opposite has happened, Sweet said. "[Scaling down] memory, that would be a logical conversation, but that's not what we're seeing," Sweet said. "We're seeing increases in memory in the units going out. It's the demands on the technology, and that puts pressure on the pricing dynamic. Levers are being pulled in a way that doesn't stall the business."

The SSD shortage is the result of accelerating demand for SSDs prompted by per-gigabyte prices that have fallen within the range of slower spinning hard disks. Another factor is the SSD manufacturers' transition from NAND memory, the key component in SSDs, to 3D NAND technology.

Dell Technologies non-GAAP first quarter sales were $18.2 billion, a 48 percent increase over the same period a year ago, which was about five months before Dell's $58 billion acquisition of EMC.

The company reported non-GAAP operating income of $1.2 billion compared to $539 million the prior year.

Client Solutions Group sales were $9.1 billion for the quarter, up 6 percent compared to the same period a year ago. CSG operating income was $374 million, a 3 percent decrease.

Infrastructure Services Group sales were $6.9 billion, a 91 percent increase when compared to the pre-acquisition year-ago period. ISG operating income was $323 million, a 68 percent year-over-year increase.