Margin mugging, a practice whereby businesses purchase products with heavily inflated margins, was rampant in the IT industry last year, a report from managed IT services firm Probrand suggests.
As reported by The Register (opens in new tab), the firm analyzed $6.6 million worth of hardware bought by businesses in the three months before the pandemic, as well as the rest of 2020. It found that the mean average margin rose to 50.84 percent during the pandemic, up from 9.4 percent in the quarter before.
Probrand says the spike in margins was due to Covid-19 shaking up the entire supply chain, and tilting the trade scale heavily towards the demand side. The lockdown forced many hardware factories in China to temporarily shut down their operations, as well as many planes to remain on the ground.
At the same time, businesses all over the world were looking to buy additional hardware in order to facilitate remote working and maintain business continuity. This increase in demand, together with the decrease in supply, inflated the prices.
There were many examples of margin mugging, Probrand says, with a Kingston Technology MicroSD card being among the most extreme. It was bought at a trade price of $3.36 and sold to a construction company for $22.24.
Market analysts are expecting the hardware shortage to continue for the remained of the year, with prices falling back to normal in 2022.
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