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How HP Has Dealt with Rising Component Prices

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Hardware prices have risen 10%–15% in the last year

According to a report from TechRadar, hardware prices have risen 10.0%–15.0% this year, and software prices have risen around 20.0%. A shortage of memory and SSD (solid state drive) components have driven prices higher. A report from SimmTester.com states, “The average contract price of PC DRAM modules rose by nearly 40% sequentially in the first quarter to US$24 and then by more than 10% sequentially in the second quarter to US$27.”

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In addition, the fall in the British pound due to the Brexit has driven prices higher. TechRadar stated that the ASP (average selling price) for personal computers and laptops rose 30.0% YoY (year-over-year) to approximately 480 British pounds in July and August 2017 in the United Kingdom. Apple (AAPL), HP (HPQ), Dell, and Microsoft (MSFT) have all experienced a rise in ASP since the Brexit vote.

Leverage relationships with suppliers

During HP’s fiscal 3Q16 earnings call last year, management said the company will increase its inventories in fiscal 4Q16. It had already forecast a supply shortage and subsequent price increases for its components. HP has leveraged its relationship with suppliers and a strong balance sheet to buy additional inventory in fiscal 4Q17.

According to CFO (chief financial officer) Cathie Lesjak, this strategy was successful since it gave HP a competitive advantage as well as a more stable outlook. HP will try to replicate this strategy although at a slower rate since it expects component prices to rise in fiscal 4Q17.

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