The other major dilemma facing companies if the Yuan rises is what to do with the extra costs. Yates said it will be harder for vendors to pass along the costs to U.S. consumers, since many users will likely just hold off buying PC and other hardware if the final price increases too much. It will also be more difficult for OEMs to sell hardware to emerging markets since many already are already selling PCs there at a much lower cost than in mature markets. "We are fairly well-trained to expect our next PC to cost either the same or cost less than the one we have now," Yates said. "PC consumers really expect to pay less than a thousand dollars for their next PC and many of them have come to expect a 10 to 15 percent decline for the same configuration or even better technology. These companies are not all of sudden going to start passing on additional costs to consumers . It might affect profits and the shareholders might have to absorb the cost.""With the PC/handset market operating with tight margins, the key value proposition is product quality," Farina said. "Therefore, I dont think manufacturers would make significant changes in suppliers based on short-term currency fluctuations." While large vendors are not talking about the potential for a rising Yuan, the companies on the frontlines of these changes will wait and see what happens, although one IT company does not feel a need to change strategy. Lew Moorman, senior vice president of strategy and corporate development at Rackspace, a San Antonio, Texas, hosting provider, said his company does not take currency into consideration, just as it would not take into account the base cost of metal or plastic in determining the right price for a piece of hardware. Most of those concerns, Moorman said, remain with the vendors his company uses, such as HP and Dell. However, he said that since hardware, unlike software, is highly commoditized and prices have steadily dropped for years, he doubts any changes to the Yuans value will deter Rackspace from its current pace of buying nearly 1,000 servers a month. "There seems to be no reason to think any differently at this point and its not a major concern for us," he said. "There has been some adjust and impact for fuel costs in order to ship the products here, but weve seen very little impact on the overall price of the components." He agreed that users simply expect low-priced hardware now, and said that if the costs of components do increase, most vendors will likely absorb most or all of the cost to stay competitive. Although Rackspace does build some of the servers it runs in its data centers, Moorman said the company is continually searching for the lowest component costs. If parts made in China increase, his company will begin to look elsewhere. "When we go to vendors for disk drives or CPUs, whether their source for components is Europe of Asia, [Rackspace tries to] find the best price possible," Moorman said. Check out eWEEK.coms for the latest news, views and analysis on servers, switches and networking protocols for the enterprise and small businesses.
Technology Business Researchs Farina said that since gross margins for hardware vendors are already tight, the way these companies differentiate themselves from one another is in the quality of the product they produce.