Emerging Markets Slowdown Continues to Inhibit IT Spending, According to IDC Worldwide Black Book
05 Feb 2014
Pent-up demand for infrastructure upgrades, capacity and bandwidth investments, and overdue replacement cycles drive IT spending priorities in 2014
Framingham, MA – February 5, 2014 – According to the new International Data Corporation (IDC) Worldwide Black Book (Doc #246614), IT spending will be inhibited by the economic slowdown in emerging markets in 2014, in addition to an inevitable deceleration in the growth of smartphones and tablets. IDC has lowered its forecasts for IT market growth in Asia Pacific (including China), Central and Eastern Europe, the Middle East and Africa, driving down its forecast for Worldwide IT spending growth to 4.6% this year in constant currency terms (down from the previous forecast of 5%). With currency devaluation and inflation likely to inhibit business confidence in many emerging economies in the first half of this year, and with the explosive growth of mobile devices having begun to inevitably cool from the breakneck pace of the past 2-3 years, overall industry growth will dip slightly from last year’s pace of 4.8%.
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Infrastructure, Software and IT Services are Hot Spots
While overall industry growth has cooled, some areas of tech spending are heating up as businesses in mature economies including the US and Western Europe, begin to invest in overdue infrastructure upgrades and replacements. Spending on servers will increase by 3%, after last year’s decline of 4%, and storage spending will also grow by 3% this year (following a 0.5% decline in 2013). The PC market is showing tentative signs of stabilization, with improving commercial shipments in mature markets. The increased pace of hardware investment will have a positive effect on IT services revenue, which is forecasted to post growth of 4% this year (up from 3% in 2013). Enterprise software spending remains broadly strong, with growth still expected in the range of 6-7%. Excluding mobile phones, IT spending growth will actually accelerate in 2014 from 2.9% last year (excluding phones) to 3.4% this year.
“The inevitable slowdown in the explosive pace of smartphones and tablets is masking an underlying improvement in many areas of IT spending,” said Stephen Minton, Vice President in IDC’s Global Technology and Industry Research Organization (GTIRO). “Businesses in mature economies are beginning to feel more confident about the economy compared to a year ago, and this is translating into new IT investments. There’s significant pent-up demand in the US and Europe for infrastructure upgrades, capacity and bandwidth investments, and overdue replacement cycles. Many businesses will choose to fix the roof while the sun is shining in 2014.”
Emerging Markets are Volatile
Exchange rate volatility is likely to exert a strong influence over IT revenues for global suppliers this year (in US dollar terms, the IT market grew by just 2.8% in 2013, compared to 4.8% in constant currency, due to the strength of the dollar). It’s too early to predict whether the dollar will remain strong throughout 2014, but the Fed’s decision to begin tapering its QE program will clearly exert a strong influence in the first half of the year. Not only will this create volatility for IT vendors during earnings season, but it may also create economic instability in key emerging markets.
“What goes up, must come down, and emerging markets have been on the down slope since last year,” continued Minton. “. The good news is that, at the same time, mature economies have stabilized significantly. The US seems to be heading in the right direction, and the worst of the crisis may be over in Europe. While growth in mature economies will still lag emerging markets in most cases, the balance of risks has shifted considerably.”
Despite the pickup in mature economies, there are still significant inhibitors that will mean that IT spending growth remains moderate by historical standards. Cannibalization remains a broad trend, impacting everything from PCs (tablets) to software and services (Cloud) and ensuring major disruption for individual vendors. Price erosion and commoditization in hardware have spread to mobile devices. While showing signs of bottoming out, the PC market continues to post year-on-year declines in revenue terms, and telecom infrastructure investment remains tepid in many countries as carriers compete for a more mature customer base.
“Any increase in the sense of uncertainty surrounding the global economy, will only add to cannibalization and price erosion in the near term,” said Minton. “IT buyers are already taking a long time to evaluate major IT projects, and focusing on ways to ‘do more with less’ in the face of frugal CIO budgeting. The industry remains vulnerable to an economic slowdown.”
Underlying Fundamentals Have Improved
Nevertheless, in spite of this ongoing cannibalization and economic uncertainty, IT market fundamentals are more solid this year than 12 months ago. There is now significant pent-up demand for new servers, storage capacity and network equipment, and this is trickling through to increases in IT services revenue. Enterprise enthusiasm for new software built around the key 3rd platform solutions of Mobility, Cloud, Big Data and Social, remains strong. Consumer enthusiasm for mobile devices and applications remains positive, even though the market has inevitably cooled.
“At the end of 2013, we passed the $2 trillion mark in annual IT spending for the first time in history, and $1 trillion in hardware spending,” said Minton. “This year’s milestones will include half a trillion dollars in spending on mobile devices alone (phones and tablets), and more than $400 billion on Software. With some markets on the up while others are on the down, a detailed and granular approach to market strategy becomes more important than ever. There will be as many losers, as winners, in the next 12 months ahead.”
IDC's Worldwide Black Book provides forecasts for IT spending in 54 countries around the world. IT spending forecasts focus on 25 individual market segments across hardware, software, IT services, and telecom services for individual countries in all regions including North America, Latin America, Western Europe, Eastern Europe, Asia/Pacific, the Middle East, and Africa. The Worldwide Black Book Query Tool presents all data in the following exchange rate views: U.S. dollars in constant currency, annual and year-to-date exchange rates, and local currency.
Additional products in this category include the Worldwide Enterprise Black Book, which analyses annual IT spending in relation to four company size segments based on employee counts. The Worldwide Black Book, Premium Edition, includes cloud spending forecasts, quarterly IT spending forecasts by region, IT vendor market share analysis, macroeconomic indicators, IT/Internet penetration, and CIO survey data. The United States Black Book: State IT Spending by Vertical Market is a quarterly analysis of the status and projected growth of the IT industry in 50 states and across 15 vertical markets.
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