The Australian dollar had just broken through the $US0.80c mark at the time of writing this column, the highest exchange rate it has managed against its American cousin since March 1997. But financial analysts seem to be in broad agreement that the rise of last year’s best performing currency on the world markets is far from finished, predicting the little Aussie battler could yet reach $US0.90c (parity with the greenback has even been whispered in some corners).
While the dizzying heights of the dollar was newsworthy in itself, the fact that it has happened less than three years since a record low of $US47.5c makes it even more remarkable. Those in the know had speculated during these dark days that the Australian dollar could stabilise at a value in the region of half a US dollar. But currency values are always fickle and, as with most things in this country, the dollar refused to acknowledge defeat and is now going through the roof.
While its revival is obviously good news for anybody booking their holidays at the moment, and depressing for any business that relies heavily on exporting, it provides an interesting conundrum for the channel.
Most components are purchased in US dollars, which means the price of IT products is falling steadily — but how much of these savings should be retained to increase margins following what was in most respects a pretty tough 2003; and what percentage passed onto customers in an attempt to drive increased sales volumes?
Putting a bit of buffer back into those skinny margins must be mighty tempting but if your competitors use the increased buying power to offer lower prices to customers then your sales could suffer — and better margins are obviously worthless unless you are shifting your stock.
The powerful performance of the Australian dollar has already made a mark in vendor land. Sun Microsystems cites the strength of the local currency as the reason why it dropped Australian prices by 7.25 per cent across the board earlier this month. The vendor, a self-proclaimed champion of ‘low-cost computing’, has set the standard and it will be interesting to see how many other manufacturers make public announcements to that effect while the local currency is in the ascendency. IBM for one has already made it quite clear that it will not play the exchange rate game, while HP said its prices were reviewed monthly in a process that includes “manufacturing costs and competitive environment”. For HP, it seems, the strong Aussie dollar is a nice little bonus for customers but not its concern. However, I would be surprised if Sun was the last multinational vendor to turn the strong Aussie dollar into a localised marketing campaign.
Although a high currency rate alone is never going to be enough of a catalyst to drive a spending revival in IT or any other industry, bang for your buck is nevertheless an important consideration for those with control over the purse strings. Added to that, I have certainly noticed that there are more advertising dollars floating around (another indicator that the industry is in more confident mood) and ARN has already reported that some distributors had a much better January than expected.
These are all signs that 2004 could be a step in the right direction for the majority of us connected in one way or another to the IT channel.
But there is a flipside to every coin. It must be pretty tough for Australian software developers and other organisations that have a business model heavily reliant on exporting their wares, particularly to the US. They will be watching for the plateau and eagerly anticipating the Aussie dollar’s fall from its current rarified position. What’s your take on a strong Aussie dollar and its effect on the market?
Brian Corrigan is Editor of ARN. Reach him at firstname.lastname@example.org