Tech and AI

Technology suppliers are refusing to hold prices across five year deals while memory and chip costs run at 20 per cent a year

By Staff Writer  |  24 August 2026

One listed supplier has told investors it walked away from deals where rivals were baking in productivity gains of 70 to 80 per cent, or guaranteeing hardware prices across three and five year terms. Buyers, meanwhile, are pressing for the same work at a quarter to a third less.

Asked on an earnings call in July to explain what he had meant by irrational competition, the chief executive of one listed technology services group gave two examples. Both are pricing decisions, and both would be familiar to anyone who has tendered a long building contract into a rising market.

The first was the productivity assumed in long deals. Bidders, he said, were writing in benefits of 70 or 80 per cent over a five year term, which he did not think could be delivered without changes to the client's own processes and systems that the client had not committed to. His company had held back from those.

The second was hardware.

I think a second area is on the infrastructure side. As you know, memory prices and chip prices are increasing significantly, and we are not willing to guarantee those for the customer, right? If you're seeing a pricing inflation of 20% year-on-year, to tell clients that you will hold the price for a 3 or 5-year deal, we think is a forward call which doesn't really make sense.

Mohit Joshi, Chief Executive Officer and Managing Director, Tech Mahindra

The component figure is not a market rumour

It has been confirmed from the buying side by a company large enough to move the market on its own. In results filed for the quarter to 30 June, one of the largest purchasers of computing hardware in Asia reported capital expenditure of RMB67,678 million against RMB38,676 million a year earlier, a rise of 75 per cent, and gave three reasons: the timing of procurement cycles, more processor capacity bought against expected demand, and higher pricing across a broad range of chip components. The third of those is the one no buyer controls.

A supplier who fixes a rate for five years against components inflating at 20 per cent a year is not being competitive. It is writing an unpriced option in the buyer's favour and calling it a discount.

Buyers are pressing in the opposite direction

At the same time the pressure on price is going the other way. The chief executive of one mid sized provider said clients were asking for the same work at 25 to 30 per cent less while expecting quicker delivery, and the chief executive of one of the largest groups in the sector said about 80 per cent of contracts in its finance, human resources and business services segment are now priced against performance outcomes rather than hours worked.

The industry that sells those hours is worth about 315 billion dollars a year. Its listed index has fallen by a fifth in 2026 and its ten constituents have lost about 73 billion dollars of market value between them. Growth has separated sharply by size: in the April to June quarter the four largest groups grew between 1 and 3 per cent, while one mid sized provider grew 16 per cent and another by a third.

The pattern a construction reader will recognise

This is a fixed price argument in a different industry. A buyer wants certainty and asks the supplier to carry the movement in an input neither of them controls. The supplier either prices the risk, refuses it, or takes it and hopes. In the third case the loss surfaces two years later as a claim, a renegotiation or an insolvency.

Two drafting points follow. The first is that a price hold has to name what it holds. Labour, hardware, licences and third party services do not move together, and a rate card that fixes all of them because nobody separated them is a fixed price contract by accident.

The second concerns outcome pricing. Payment tied to a productivity outcome only works if the outcome can be measured against a baseline both parties agreed before work started, and if the contract says what happens when the buyer's own systems are the reason the outcome is not reached. Where the supplier's fee depends on efficiencies that require the buyer to change how it works, the obligation to make those changes belongs in the contract as a term. If it is not there, the supplier has taken performance risk on a matter outside its control, which is where these arrangements usually go wrong.