The channel is being hit by the falling pound because most vendors still price in dollars.
Sterling has fallen by as much as 12.5 percent against the dollar since February 2022. Prices will either have to rise or more gear will have to be sold to obtain the same amount of profit.
Vendors like dollars because that’s their home currency. But if a vendor planned to sell $40 million of kit in the UK in 2022 with a profit of $4 million, at July currency rates it would need to sell £32.9 million of equipment instead of £29.36 million at February rates. Sales increases of nearly 11 percent to keep your head above water rarely happen.
Microsoft chief financial officer (CFO) Amy Hood old an analyst conference call in July that revenue was “negatively impacted by $595 million” for the fourth quarter “beyond our expectations shared in April”.
She added that currency changes had “decreased total company revenue by four points, two points unfavourable to expectations”. On the slightly positive side, they also decreased cost of general sales and operating expense growth “by two points, one point favourable to expectations.
“Assuming current rates remain stable, we expect a roughly four-point impact to full-year revenue growth with headwinds in H1 greater than in H2. Foreign exchange should also decrease cost of goods sold and operating expense growth by two points.”
Hood estimated the strong dollar “could decrease total revenue growth by approximately five points”.
IBM CFO Jim Kavanaugh moaned that that currency translation had affected the company’s reported second-quarter revenue “by over six points of growth, or $900 million – that’s over 200 million more than the spot rates would have suggested 90 days ago”.
British channel companies are rather stuck because its difficult to raise prices in the UK because there is a cost of living crisis and concerns over a possible recession. Inflation is its highest in 40 years and the supply chain is a mess.
