CIOs offering vendors "suicidal deals"

IT vendors are being asked to accept "suicidal deals" that actually lose them money, as CIOs learn how to use the credit crunch to their advantage.

Some customers are now bringing forward spending and using the downturn as an opportunity to get the best price - but not all vendors are willing to get involved in such radical cost cutting.

Steve Gill managing director of HP UK and Ireland said his company had walked away from "pretty big deals" because the economics didn't make sense.

"Some of our competitors have signed up for suicidal deals where we know they are going to lose a fortune to supply the deal to their customers," he told a roundtable briefing in London yesterday.

Iain Stephen, HP's VP of enterprise storage and servers for UK and Ireland, told silicon.com that factors such as fluctuations in the costs of components and the dollar/pound exchange rate are making it harder for suppliers to reduce their prices as much as customers would like.

Case in point: a recent e-auction. Traditionally, such procurement exercises take half a day as vendors inch their bids downwards in an effort to outdo each other and land the deal. According to Stephen, the e-auction lasted just 37 minutes and eventually had to be called off as none of the IT suppliers involved would cut their bids beyond their initial gambit.

"Nobody wants to make a commitment to a very aggressive price," he said.

Gill said that in the current environment, there is likely to be a flight to quality as customers look to suppliers that are likely to survive in the long term.