Rising dollar sparks markdown in 2015 IT spend projections

Global IT spend to decline 5.5% over 2014, according to latest Gartner forecast

Tags: Gartner Inc. (www.gartner.com/technology/home.jsp)
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Rising dollar sparks markdown in 2015 IT spend projections IT spending is expected to reach $3.5 trillion in 2015
By  Tom Paye Published  July 1, 2015

Global IT markets are reeling from the effects of the rising US dollar, with spending figures for 2015 expected to decrease by 5.5% over 2014, according to Gartner.

In its latest forecast, Gartner said that worldwide IT spending is expected to reach $3.5 trillion in 2015, down from 2014's total spend of $3.71 trillion. However, Gartner pointed out that what is happening is by no means a crash. The research house said that, were it not for the rising US dollar, the market is projected to grow 2.5% in constant-currency terms.  

"We want to stress that this is not a market crash. Such are the illusions that large swings in the value of the US dollar versus other currencies can create," said John-David Lovelock, research vice president at Gartner.

"However, there are secondary effects to the rising US dollar. Vendors do have to raise prices to protect costs and margins of their products, and enterprises and consumers will have to make new purchase decisions in light of the new prices." 

Indeed, in Gartner's previous forecast in April, the research house predicted that IT spending would decline by 1.3% in US dollars, though it would grow 3.1% in constant currency. The revised figures illustrate the effects that rising US dollar is having.

In terms of segments, communications services will continue to attract the largest global IT spend, with spending at nearly $1.5 trillion. However, this segment is also experiencing the strongest decline among the five IT sectors that Gartner tracks. Price erosion and competitive threats are preventing revenue growth in proportion to increasing use within most national markets, Gartner said.

In the device market, mobile phones continue to be the leading segment, with growth in Apple phones, especially in China, keeping overall phone spending consistent. However, overall smartphone unit growth will start to flatten, Gartner predicted. Meanwhile, the PC and tablet market continues to weaken. The expected 10% increase in average PC pricing in currency-impacted countries is going ahead, delaying purchases even more than expected. Excessive PC inventory levels, especially in Western Europe, need to be cleared, which will delay Windows 10 inventory in the second half of the year, Gartner said.

Within the data centre systems segment, storage and network markets are both expected to see weaker growth in US dollar terms as a result of the appreciation of the US dollar. Enterprise budgets for data centre systems in local spending are expected to remain stable for the year, with users expected to extend life cycles and defer replacements as a means of offsetting the price increases, Gartner predicted. However, Gartner added that the overall near-term data centre weakness is slightly offset by a more positive outlook for the server market. The server market is benefiting from a stronger-than-expected mainframe refresh cycle, as well as increased expectations for hyperscale spending. 

Enterprise software spending is forecast to decline 1.2% in 2015, with revenue totalling $654 billion. Gartner said many software vendors will try not to raise prices because software as a service (SaaS) is about market share, not profitability. Raising prices could take software vendors out of a sales cycle, and these vendors don't believe they can afford to lose a client, Gartner said.

Finally, IT services spending in 2015 is projected to decline 4.5%. Gartner said it expects modest increased spending on consulting in 2015 and 2016, as vendors have demonstrated their ability to stimulate new demand from buyers looking for help with navigating business and technology complexities, particularly related to building a digital business. However, the forecast for implementation services has been slightly reduced. Increasingly, Gartner said, buyers prefer solutions that minimise time and cost of implementation, driving demand for more-efficient delivery methods, out-of-the-box implementation, and lower-cost solutions. 

Despite all of this, though, Gartner said that the prospects for the IT industry were rosier than the numbers might suggest.

"IT activity is stronger than the growth in spending indicates. Price declines in major markets like communications and IT services, and switching to 'as a service' delivery, mask the increase in activity," said Lovelock.

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