​IT investment rate slows as businesses put on the spending brakes

​IT investment rate slows as businesses put on the spending brakes

“Aside from exchange rate volatility, IT spending has been relatively stable for the past five years.”

Worldwide IT spending is expected to post a major slowdown in 2016, as economic weakness in emerging markets and saturation of the smartphone market combine to result in a significantly slower pace of tech spending growth compared to the past six years.

Having posted annual growth of 5-6 percent in constant currency terms since recovery from the financial crisis in 2010, the global IT market is expected to increase by just 2 percent this year (in constant currency).

According to latest IDC findings, total IT spending on hardware, software and services will reach $US2.3 trillion in 2016 - including telecom services, total ICT spending will increase by 2 percent to $US3.8 trillion.

IT spending was relatively stable in 2015, in spite of the volatile economy, propelled by another strong year for smartphone shipments, which compensated for a weakening PC market throughout the year.

Smartphones accounted for half of the overall industry growth rate of 6 percent in 2015. Spending on cloud infrastructure was also strong throughout the year, resulting in growth of 16 percent for the server market and 10 percent for storage systems.

Enterprise spending on software, including SaaS, posted healthy growth of 7 percent with strong investment in analytics, security, and collaborative applications.

However, the strong US dollar made 2015 an uncomfortable year for US-based IT companies.

In US dollar terms, the overall IT market declined by 2 percent last year, and exchange rate volatility remains a wild card which could influence the fortunes of IT suppliers over the next 12 months.

“Aside from exchange rate volatility, IT spending has been relatively stable for the past five years,” adds Stephen Minton, Vice President with IDC's Customer Insights and Analysis group.

“Excluding mobile phones, overall tech spending has continued to grow at 3-4 percent each year in constant currency terms since we recovered from the disruption of the financial crisis.

“A solid PC upgrade cycle in 2014 was followed by a major cycle of infrastructure spending in 2015, mostly driven by cloud. IT buyers continue to prioritise software investments like data analytics and enterprise mobility, and have increasingly leveraged the service provider model in order to increase the effectiveness of their IT budgets.

“Underlying buyer sentiment is strong.”

Closer to home, Asia/Pacific will post growth of less than 2 percent in 2016, compared to 7 percent in 2015, largely due to the overall slowdown in China.

The IT market in Japan is expected to stabilise, recovering to growth of 1.5 percent after posting a slight decline in 2015. India remains a bright spot, and posted growth of 13 percent last year in constant currency terms, driven by a strong PC market, which was propelled by government initiatives and education projects.

While a slowdown in PC revenues and more difficult year-on-year comparisons for cloud infrastructure spending will result in weaker overall IT spending growth of 8 percent in 2016, underlying sentiment remains strong and we forecast accelerating growth in software and services.

Meanwhile, India will rebound to double-digit growth in 2017, and will represent an increasingly vital source of growth for global IT suppliers over the next five years.

“India is a vital market for tech companies in 2016, representing a market that still has huge room and potential for growth across many sectors,” Minton adds.

“India's current importance to many IT vendors in some ways mirrors the importance of China a decade ago.

“Although the overall market is still much smaller than China, India's expected rate of growth will see it overtake Australia and Canada to enter the top 10 largest IT markets by 2020.”

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