Server makers are being warned to justify price increases with better performance and additional features if they want to avoid a substantial decline in European sales, according to a new report.

International Data Corp. (IDC) said in a research note that U.S. firms have been forced to raiser their prices several times this year due to the stronger U.S. dollar, and the impact of that is being magnified by the uncertainty over Europe’s economy.

“The ASP (average sales price) increases could soon start to affect value propositions and demand toward the end of 2015 if vendors can’t justify the increased prices with additional functionality and performance,” IDC said.

In actual fact, the impact of the strong dollar can already be seen. In IDC’s most recent quarterly server tracker, it said Q2 market revenues would have grown by 21 percent if not for the Euro’s decline versus the dollar. Instead, revenues declined by 4.5 percent to $3.1 billion.

Server makers are therefore staring in the “face of a challenging economic situation”, IDC said.

The market watcher explained that U.S. companies have been forced to raise prices in Europe to maintain profitability in dollar terms, but that tactic is slowly turning off European buyers. It added that the decline in server sales was partly offset by a cyclical refresh spurred on it part by IBM’s recent System z upgrade and buyer’s interest in Big Data projects. That meant spending on non-x86 servers fell by just 8.4 percent to $569.4 million, which is slower than in previous quarters. CISC mainframe spending went against the groove, rising by 9.2 percent, but RISC and EPIC mainframe spending crashed by 20.1 percent and 28 percent respectively.

Overall, Western European server spending was down 0.3 percent in Q2, while Central and Eastern Europe and Africa saw spending fall by 10.1 percent.

Image credit: Aitoff via pixabay.com