Profitability Pressure: How Component Shortages Are Threatening Channel Margins

‘Turbulence’ is just one word to describe what solution providers are feeling in their day-to-day business as constant fluctuations in hardware prices and availability have them striving to meet customer needs while keeping their eye on the bottom line.

C.R. Howdyshell knew his team had to move fast.

His company, Independence, Ohio-based solution provider Advizex, was working on a $7 million compute order in February for a new customer, and the OEM supplying the deal had warned that prices would go up by Thursday at midnight.

The large enterprise customer rushed to get a purchase order in by Tuesday morning, and Advizex passed it on to its distribution partner that same day, leaving less than 48 hours before the expected price hike.

But that’s where the order hit a snag, said Howdyshell, CEO of Advizex, a Myriad360 company, ranked No. 129 on CRN’s 2025 Solution Provider 500 list.

A deal of that size required direct authorization by a senior-level distribution employee, but unfortunately the executive’s approval was delayed and missed the deadline, said Howdyshell, declining to name the companies involved.

“It was too late because the pricing went up from the OEM at midnight,” he said.

That slip in the timeline meant the order price rose by $300,000, an increase of more than 4 percent that the vendor was not willing to forgo, Howdyshell said.

“[An executive advocate at the vendor] took it as high as he could take it, and they were like, ‘No, we’re not eating it. We’re not going to start this with any partners,’” he said.

Not wanting to pass the increase on to a brand-new client, Advizex instead reached an agreement with the distributor to cover the cost overrun, with the solution provider absorbing most of it.

Howdyshell considered the incident a one-off that Advizex and the distributor vowed to never let happen again. But to the IT veteran, the margin hit that his company took for the deal is reflective of the broader profitability pressures the channel faces from the underlying cause of the OEM price increase: the global memory crisis resulting from the race to build AI data centers.

“Everybody’s going to be squeezed for more profitability, and we just need to work closer with the OEMs to really try to see what we can do programmatically or just on the volume to improve profitability as much as possible,” he said.

With the memory shortage making servers and PCs more expensive and harder to source, solution providers are facing unprecedented margin pressure as deals become more complicated and customers ask partners to absorb some of the extra cost. At the same time, OEMs are taking steps to protect themselves in ways that are impacting partners, rolling back long-standing terms that previously locked in order prices and canceling programs that safeguarded channel profits.

Harry Zarek, president of Richmond Hill, Ontario-based Compugen, likened the constant price fluctuations—and the margin-crushing friction they introduce into the sales cycle—to a fistfight.

“We’re now in hand-to-hand combat on every customer and every procurement,” he said, noting that the amount of effort it would normally take Compugen to place orders for customers in these situations has doubled.

Howdyshell said the impact of the memory shortage will be widespread for the channel, with vendors unwilling or unable to offer safe harbor for partners.

“I don’t think it’s going to be different with any OEM. They’ve made it clear: They’re not budging on this because the costs keep going up. Demand is going to keep going up,” he said.

The Ripple Effects Of ‘Insane’ Memory Price Increases

With hyperscalers like Amazon and Google scrambling to meet AI demand and consuming a huge portion of production capacity for high-end memory chips, including those used in GPUs from Nvidia and AMD, acute shortages of DRAM and NAND chips are now widespread.

The supply constraints for such chips—used in everything from smartphones and PCs to servers and other kinds of data center hardware, plus all sorts of consumer devices—have been causing prices to rise rapidly since late last year.

For instance, a 16-GB DDR memory module for desktop PCs that cost around $38 last August was priced at $160 last month, representing a 321 percent increase, according to Kent Tibbils, vice president of marketing at Fremont, Calif.-based distributor ASI.

“When you hear people say, ‘Oh, they raised it 70 percent, and then they raised it 100 percent [the next quarter],’ it’s like, yeah, that sounds like a lot, but when you actually look at how much that price went up, it’s insane,” he said.

The resulting price increases for some hardware products, particularly on the data center side, have also started to sound farfetched to solution providers.

“The increases are becoming more and more unbelievable. We had one quote for $22 million, and then it came back at $41 million. This is impossible,” said a top executive at a U.S. systems integrator that was in the top 100 of the CRN 2025 Solution Provider 500.

In addition to price increases, the memory shortage has wreaked havoc on availability for various hardware products, including PCs and servers, according to solution providers.

“Never have we seen, ‘Hey, we’re sold out through 2027.’ Everyone’s sold out,” added the systems integration executive, who asked to not be identified in order to speak candidly. “It’s now as if the OEMs are rationing the equipment. We’ve never seen that before.”

These dynamics have created ripple effects within the channel. As a consequence of rising memory prices, OEMs have changed ordering policies, in some cases narrowing price quote windows to as little as two weeks—or shorter—and warning partners that prices could increase before products ship.

Some channel executives are calling these dynamics unprecedented, even when compared with the supply chain shocks of the COVID-19 pandemic in the early 2020s.

“We have never been in a situation since I’ve been doing this for 30 years where a solution provider could place a [purchase order] and the price could change after the PO is placed,” said Marty Bauerlein, chief consumer and commercial officer at Harrisburg, Pa.-based D&H Distributing.

HPE and Cisco Systems, for instance, told partners last month that prices could change for products—servers and GreenLake offerings in HPE’s case—before they ship in the event of rising component costs and supply constraints. Cisco also said it has the right to cancel orders up to 45 days before products ship. HPE, on the other hand, warned it could do so at any point before the date of shipment, although it said partners can also spike orders.

Stefan Hellersperk, president of Morehead City, N.C.-based solution provider ACS Computer Services, said he is also seeing price fluctuations with Dell Technologies.

“Sometimes quote validity is almost nonexistent. It’s almost like, ‘This is the suggested price, but we can’t guarantee that when you order it,’” he said.

“It’s like a little dance we’ve got to do to educate customers on what the market is doing, and this is the price, but there’s a good chance by the time you approve it and I go back to them, it might be invalid. We’ve got to give them a little cushion,” added Hellersperk.

Dell Technologies Vice Chairman and COO Jeff Clarke on a February earnings call said the company has moved quickly to react to the shortage, including changing list prices, adjusting margin floors and compressing discounting.

“Our quotes are valid for the shortest period of time they’ve ever been, and we’re reducing promotions and all sorts of special pricing going forward,” Clarke said.

The Higher Cost Of Complex Sales

Some solution providers said they are seeing price quotes from vendors that expire faster than the two-week windows that have started to become common in recent months.

"I think the biggest issue is the shock about the immediacy with which we have to inform customers that there is no period of time where the price is fixed or is known. It may change today, tomorrow [or] next week,” said Zarek of Compugen, one of Canada’s largest privately owned solution providers, ranked No. 65 on CRN’s Solution Provider 500 last year.

These constant fluctuations in hardware prices and availability have created turbulence for sales cycles, with solution providers now needing to spend extra time going back and forth between vendors and customers when there are changes in either variable.

“The administrative burden that this puts on us is quite substantial because we’ve got to get a price, then we have to contact the customer, then the customer has to approve it and send a PO within a period of time that we can place our order with our vendors, and that is a highly manual process,” he said.

To Zarek and other solution provider executives, the extra work is seen as one of several headwinds they face for profitability this year because of component shortages.

“More friction means more cost,” he said.

For the top U.S. systems integration executive, the constant back-and-forth becoming commonplace for sales discussions is tripling the amount of time his company is devoting to closing deals. That’s happening in part because he is now finding the need to get directly involved in matters that his sales team would typically manage without him.

“An order that I might not ever see—now I’m making phone calls and [attending] multiple meetings,” he said. “We’re wasting time on things that normally you would never touch, and those things produce revenue and profitability for every company.

“So now we’re all having to get involved to try and essentially get the same end result with maximum effort to try and land the plane,” the systems integration veteran added.

But the executive sees another threat to profitability: the lack of inventory from OEMs. He experienced this possibility in January when a GPU-accelerated server product suddenly became unavailable after spending a day of going back and forth with Dell representatives about placing an order. The order was finally able to go through in early March.

“My concern is just that we won’t have stuff to ship, and so your profitability is 100 percent jeopardized if you can’t ship stuff,” the executive said.

Between A Rock And A Hard Place

With short price quote windows and prices potentially increasing after orders are locked in, solution providers are grappling with whether to pass on the price increases to customers, absorb the markup and take a hit on margin or walk away from deals altogether.

“It’s impacting us to the point where we’re going back to our customer and telling them that if they can’t pay a higher price, we can’t deliver the product. We would be severely underwater,” said Mike Turicchi, vice president of marketing and strategic relations at Manassas, Va.-based systems integrator NCS Technologies.

While NCS Technologies resells OEM systems, the solution provider also builds its own rugged servers, which gives it extra insight into component supply and pricing.

Prior to the memory crisis, a surefire way to save money on a system, whether a PC or server, would be to reduce the system’s RAM capacity. But even with that lever available during the memory shortage, Turicchi said, “we can’t keep up.”

The executive said NCS Technologies “can’t maintain a constant price” because the supply chain has become so volatile that the company is either “getting quotes on memory daily” or no quotes whatsoever, creating even more uncertainty.

“We’re having to send a blank PO, and then they tell us what the price is the day that it ships,” Turicchi said of memory vendors. “It’s impossible to maintain any type of price consistency or give any expectations to a customer when we don’t know what we’re paying until we receive it, and lead times are long.”

If lowering the RAM capacity isn’t an option, the customer could also reduce the number of systems to fit its budget, according to the executive.

But Turicchi said if his company can’t deliver on a contract for a government agency customer—which is a major focus for NCS Technologies as a federal contractor—such a customer could find the solution provider “at fault for not delivering.”

“They can actually keep us from bidding for a period of time [if such a situation were to occur]. They can keep us out of the competition,” he said.

As NCS Technologies works to avoid these scenarios, Turicchi said his company is still facing profitability pressure in this space, with government customers starting to dictate how much margin they think the solution provider should make on deals.

“We have government agencies coming back now, and they’re asking us to show our costs, and [telling us] we can mark it up 2 percent or 1 percent, and that’s all that they’ll let us do in order to take part of the hit with them,” he said.

“So they want to see what our costs are, and they’re looking at everything. They want to see the bill of materials, component costs. And it’s tough,” Turicchi added.

While Turicchi said the extra level of diligence by government customers is “great for relationship-building,” the work “takes a lot of time and just wrecks our profitability.”

The executive said this leaves NCS Technologies with an uneasy decision: “Do we want to give up this customer, maybe forever, or take it on the chin and understand that we’re going to have a lean year margin-wise and try to just weather the storm?”

Slashed Incentive Programs Add More Pain

While rapidly rising memory prices have caused OEMs to change order terms in ways that could hurt profitability for partners, the crisis has also sparked at least some vendors to pause or cancel certain incentive programs, creating another risk to margins.

For instance, Cisco last month said it was canceling promotions and discount incentives—including deal registration—for compute products, meaning servers, effective immediately. This did not impact the vendor’s networking and security businesses.

A top sales executive for a large CRN Solution Provider 500 company said while the memory price increases and corresponding shortages are creating chaos, he considered Cisco’s move to cancel deal registration for compute products as the biggest shock to the system.

“It’s insane,” said the sales executive, who did not want to be identified.

The sales executive predicted this would spur Cisco to cede market share to competitors like Dell, HPE and Lenovo as solution providers seek help with margins elsewhere.

“Our reps have no choice but to recommend another option,” he said. “They have to put food on the table.”

In response to the deal registration announcement, a Cisco spokesperson told CRN that it is “working to adapt quickly to this rapidly changing situation and deliver the innovation and reliability our partners and our mutual customers expect from Cisco.”

“We’re committed to transparency and providing tools to help partners manage these changes with our mutual customers. And we’re actively listening to partner feedback as this evolves,” the representative added.

Other vendors are also making adjustments that potentially impact partner margins.

For example, Lenovo in January paused new customer bonus nominations for data center products, removing up-front discounts for partners that win deals with new customers.

Turicchi, the NCS Technologies executive, said he is seeing more than a dozen vendors removing certain kinds of incentives, including back-end rebates, due to the memory shortage. He declined to name the vendors but said they include suppliers of graphics cards, network cards and other kinds of products that rely on DRAM and NAND chips.

“They’re looking at the entire business to see where they can cut their costs and try to maintain some level of profitability and stability,” he said.

The loss of incentives such as back-end rebates that NCS Technologies uses to calculate the cost of customer proposals hurts the company’s profitability and “makes us less competitive,” he said.

The executive estimated that such incentives contribute millions of dollars to NCS Technologies’ bottom line every year.

“In a lot of cases, we're racing to the bottom in some of these opportunities that we’re bidding. [Back-end rebates would represent] most of our margin,” he said. “That’s if we haven’t already factored it into the cost of the of the device up front.”

A CPU Shortage Takes Shape

While the memory shortage is creating the biggest impact in the channel, the AI data center boom is also starting to create shortages for CPUs, which some solution providers are starting to feel.

In an interview with CRN last month, Intel Global Channel Chief Dave Guzzi said the CPU shortage is impacting virtually every partner, including cloud service providers, OEMs and system builders—and will likely cause prices to increase, albeit not at such exorbitant rates.

“There may be some relatively small price changes, but nothing like what we’re seeing in the memory market,” he said.

Driven largely by unexpectedly strong demand from AI data centers, supply constraints have led Intel to prioritize server CPUs where possible and concentrate on midrange and high-end CPUs for PCs. The chipmaker has said that the shortage would peak before April, with production capacity expected to improve throughout the year.

AMD, too, said demand for server CPUs has “far exceeded” expectations due to AI data center developments, resulting in constrained supply chains.

NCS Technologies is among the solution providers feeling the CPU crunch, both as a reseller and as a system builder.

“Intel has been communicating some of the constraints on their lower-end parts, and I know they’re prioritizing their higher-end components. They’re more profitable and, based on availability, they’re going to prioritize the most profitable parts when there’s a shortage,” said Turicchi.

On the OEM side, NCS Technologies is seeing major supply issues with Intel-powered Chromebooks, with vendors telling his company that “it could be a year before we can get product on any new orders,” Turicchi said.

For its rugged server business, Turicchi said, lead times for Intel’s entry-level and midrange Xeon processors are extending out to “as much as six months for any new orders.”

An Intel spokesperson told CRN in a statement that the company remains “committed to the entry-level PC and other client segments that are critical to our channel partners” as it prioritizes “production of high-performance CPUs to support growing AI and infrastructure needs.”

“We’re actively working to increase supply across multiple manufacturing nodes and expanding capacity across our global supply chain to improve product availability in the coming months,” the representative added, noting that the company continues to see “very strong” demand across both client and data center markets.

Mitigating The Profit Impact

The volatility around pricing, supply, ordering terms and incentive programs has created varying degrees of uncertainty in the channel. While solution providers are pushing customers to place orders as soon as possible to fight ongoing inflation, they are looking at other ways to mitigate the various threats they see to profitability.

“We’re having those talks every day right now, and it’s concerning,” said Turicchi.

International Computing Concepts, which ranked No. 1 on CRN’s 2025 Fast Growth 150, is considering the possibility of reducing the number of strategic investments it makes this year, including hiring new employees or introducing new services.

“Maybe we have three projects we want to invest in, and so instead of three, we’ll only do two,” said Alexey Stolyar, ICC’s CTO, whose Northbrook, Ill.-based company was also No. 108 on CRN’s Solution Provider 500 last year.

While ICC’s partnership with Nvidia helped the systems integrator grow revenue by 376 percent between 2022 and 2024, Stolyar said the AI infrastructure giant’s partners, including solution providers and OEMs, are fighting over margins to win customers.

“With Nvidia really standardizing everyone, the OEMs are trying to do more, so it’s putting pressure on guys like us, and we have to find value in other places,” he said.

Stolyar said ICC has been ramping up its services capabilities over the past few years to diversify its business, but many of its services are attached to hardware sales.

“If the hardware now takes longer to ship, it’s not as clean of a process,” he said.

Chandler, Ariz.-based Insight Enterprises, No. 20 on the 2025 CRN Solution Provider 500, is seeing the same kinds of threats to hardware margins as other solution providers.

But Prashant Singh, the company’s vice president of revenue operations and partner alliances, said the scale of Insight’s operations, combined with the diversity of its offerings, will help the solution provider weather supply-related headwinds.

For instance, Insight’s client-owned inventory, made possible by its warehousing capabilities, “is almost doubling” thanks to customers that want to buy devices ahead of time to protect against future price increases, according to Singh.

“We are seeing a lot of momentum with our clients [placing orders earlier]. We’re trying to get ahead of it, and I think we have been effectively positioning the message that, ‘Hey, if you want to hold inventory, you need to pay for it,”’ he said.

The solution provider is also talking to customers about how Insight can help them “sweat their assets just a little bit longer” with offerings such as its Flex for Devices life-cycle management services and OneCall support program, Singh added.

“The consultative approach is in our DNA, but this is an inflection point where every seller of ours gets to fine-tune it and then get in front of the customers with the help of clear talking points, a clear call to action and clearly articulating our core capabilities,” he said.

But even with this positioning, Singh said he’s less certain about how the market is going to play out in the second half of this year if AI-driven supply constraints continue.

"No one knows what’s going to happen in the second half,” he said.

Advizex’s Howdyshell said his company is doubling down on software and services capabilities, including HPE’s channel-driven VM Essentials virtualization offering, to offset any margin hits from the hardware side of things.

“We’re all dying on the hardware side. We’ve got to find software and services. We’re going to take advantage of those kinds of programs to help subsidize the supply chain challenges,” he said.

But with hardware representing 70 percent of Advizex’s business, Howdyshell said the solution provider will keep pushing customers to place orders as soon as possible—not just for his company’s sake but so that customers, particularly those developing AI-based offerings, have a better chance of growing their business faster.

“If you’re an AI customer [and] you’re trying to get revenue moving, that’s the opportunity from the channel perspective,” he said.

The key for both solution providers and customers is to be proactive, Howdyshell said.

“It’s not going to get better,” he said. “It’s going to get worse.”

Steven Burke and Joseph F. Kovar contributed to this story.