 "IT Spending Expected To Accelerate Next Year, After Emerging Markets Slowdown In 2013")
According to the new International Data Corporation (IDC) Worldwide Black Book just released, worldwide IT spending is expected to accelerate next year after dipping to its slowest pace of growth since the financial crisis in 2013. Overall tech spending is on course to increase by 4 percent this year at constant currency, reaching $2.04 trillion, down from last year’s growth of 5 percent due mainly to the slowdown in key emerging markets including China and Russia. IDC forecasts that in 2014, a rebound in China and continued momentum in the US and Europe will see a return to overall industry growth of more than 5 percent (reaching $2.14 trillion).
Smartphones Still Driving Growth, but Infrastructure Set for Recovery
In fact, almost half of this year’s industry growth is due to continued strength in smartphone and tablet shipments. Excluding mobile phones, IT spending will increase by only 2.6 percent this year at constant currency (just 0.7 percent in US dollar terms, based on year-to-date exchange rates). Enterprise IT spending in many regions has been tepid since last year, with weaker spending on PCs, servers and storage than previously expected. Tentative signs of stability in commercial PC shipments during Q3, however, may foreshadow the gradual recovery in enterprise infrastructure investment which we expect to unfold in the next 12-18 months as a broad-based capital spending cycle kicks into gear. Spending on servers, storage and enterprise networks will increase by just 1 percent in 2013 before accelerating to growth of 4 percent next year.
“This has been a tough year for many IT vendors, with infrastructure spending in the first half of 2013 proving weaker than previously expected,” said Stephen Minton, Vice President in IDC’s Global Technology & Industry Research Organization (GTIRO). “The overall industry has been propped up by continued strength in mobile devices, especially smartphones, but the slowdown in emerging markets was another headwind for infrastructure-focused tech firms on top of government sequestration in the US and continued sluggish growth in Europe.”
US Market Is Resilient, Despite Politics
While the US is on course to post IT spending growth of 5 percent this year, this translates into just 3 percent excluding mobile phones. Enterprise spending in the US has been relatively resilient, given the ongoing political volatility, but spending on PCs and servers will decline this year while storage investment is flat. Both the storage and server markets in the US are expected to improve in 2014, but PC spending is likely to remain weak in spite of signs of stability in Q3 as tablet cannibalisation continues at lower price points.
“The US market has held up pretty well, all things considered,” said Minton. “The main headwind, aside from uncertainty over the next round of political dogfighting, is cannibalisation as tablets continue to eat into PC sales and as the Cloud eats into traditional IT services revenues. This cannibalisation trend is seen across all geographies, and will be a constraint on IT spending even while the macroeconomic environment improves.”
Europe and Japan Have Stabilised
Market conditions are gradually improving in Western Europe, where overall IT spending is on course for growth of 2 percent this year (1 percent excluding phones), and where economic momentum has taken a turn for the better in many countries. We assume that this gradual recovery will continue next year, translating into IT spending growth of 3 percent driven mainly by strengthening sales of commercial software. This year has also seen a moderate improvement in Japan, driven by the government’s short-term policy initiatives; while IT spending is on course to be flat in 2013 (0 percent growth), this marks an improvement from our previous forecast of a 1 percent decline.
“Momentum in developed economies has been broadly positive since the start of 2013,” said Minton. “The gradual turnaround in Europe is restoring business confidence, leading to a strengthening of our assumption that next year will be better than this year for most IT vendors. In Japan, some sectors have performed stronger than previously expected. But while the news from developed economies has been mostly positive since January, the drag on overall industry growth this year has been the slowdown in emerging markets.”
China Will Rebound in 2014
IDC forecasts that IT demand will accelerate in China next year, in line with our expectation that macroeconomic growth and business confidence will improve. In China, overall IT spending is on course to increase by just 8 percent this year, the weakest pace of growth since 2008; next year, we forecast an acceleration of growth to 14 percent led by strengthening sales of PCs, servers, storage, software and IT services. Growth in India will remain broadly strong, driven mainly by smartphones and tablets, but we expect a slowdown in PC sales after state-level government initiatives helped to drive strong growth in 2013, while there are also signs of weakening growth in other sectors. A gradual deceleration in tech spending is also emerging in Brazil, while in Russia the economic slowdown has driven overall industry growth to just 1 percent this year (from 15 percent in 2012). We forecast a rebound in Russia to 10 percent growth next year, driven by smartphones, software and services.
“In recent years, growth in emerging markets has been a ‘pot of gold’ for many global IT suppliers, as they capitalised on huge opportunities to expand into new territories even while growth in developed economies was anemic,” said Minton. “This year has been a different story, with some organisations stung by the large bets they placed on a continuation of those growth trends. It’s important to remember that growth in emerging markets will continue to outpace the US, Europe and Japan, in spite of these bumps in the road, and that any retreat from those geographies will only be to the benefit of emerging competitors from China and elsewhere with global ambitions of their own.”
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