Yes, tech spending is shrinking, but don't panic yet

Worldwide IT spending will drop this year, thanks to a strong dollar, according to analysts. But that isn't bad news for everybody.
Written by Steve Ranger, Global News Director

Worldwide spending on technology will reach $3.5 trillion in 2015, a 5.5 percent decline from 2014, when it stood at $3.7 trillion, according to the latest forecast by analyst group Gartner.

To put that enormous number into some context, that means the total value of IT spending around the world is roughly the same as the gross domestic product of Germany.

Much of that 5.5 percent drop is a consequence of the strong dollar, which is making it more expensive for customers to buy products or services priced in dollars.

Hardware, including mobile phones, PCs, printers, servers, storage, and networking equipment, is going up in price in Europe this year, and will continue to go up in price through to the end of the year. Software, IT services, and communication services are all being affected, said Gartner, with customers putting off spending as a result.

Worldwide IT spending by sector in billions of US dollars.
Image: Gartner

For example, the price of PCs is going up, which will delay spending by customers. Similarly, businesses are likely to defer spending on data centre equipment as a way of offsetting the price increases. Enterprise software spending is forecast to decline 1.2 percent in 2015, with revenue totalling $654bn, although many software vendors will try not to raise prices as they try to expand their market share.

However, it's not all doom and gloom. When looked at in constant-currency terms, overall tech spending is still projected to grow 2.5 percent -- although that's down from the 3.1 percent Gartner predicted in April.

"It looks like a crash. It is not a crash," said John-David Lovelock, research vice president at the analyst firm.

And not all of the drop in spending is down to the strong dollar: some of it is due to downward pressure on prices. Tech is getting cheaper, and we're still buying more of it, Lovelock points out, so some of this is actually good news for customers (if not suppliers).

For example, communication services is the largest single IT spending segment, at nearly $1.5 trillion. But as such services become more of a commodity, suppliers are resorting to price cuts to win business.

More for less

And while there are short-term rises in the price of tech thanks to the strong dollar, the general trend is 'more for less'.

"Competitive pressure is pushing telecoms down, increased automation is pushing the IT services market down because many of the things they do are becoming more commoditised. Instead of taking advantage of labour arbitrage, moving things to China or India where employees are paid less, they are now starting to move it to an automated process... bringing the price down even more. Servers continually go down in prices, storage continually goes down in price, even software to some extent is coming down in price," said Lovelock.

What's more interesting than the headline figure is how the spending is changing, said Lovelock: for example, a shift from on-premise applications to the cloud, and from capex to opex.

Similarly, who does the buying is changing. Lovelock points out that the number of devices per employee in the enterprise space is dropping over the next five years, while at the same time the number of devices per consumer is rising. "It changes the dynamic of who is spending the money and what they are looking for," he said.

Gartner predicts it will take until 2018 before IT spending growth hits three percent again.

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