According to research firm IDC, recent volatility will gradually give way to a more positive outlook for IT spending in the second half of 2014.
With the US and other mature economies mostly heading in the right direction and a significant commercial PC refresh cycle already underway, improvements in business confidence are set to drive a moderate infrastructure upgrade cycle over the next 12-18 months, while investments in software and services will continue to accelerate.
Worldwide IT spending is now forecast to increase by 4.5 percent in 2014 at constant currency, or 4.1 percent in US dollars. A significant proportion of this growth is still being driven by smartphones ? IT spending excluding mobile phones will increase by just 3.1 percent this year in constant currency (2.8 percent in US dollars).
Aside from smartphones, the strongest growth will come from software, including rapidly expanding markets such as data analytics, data management, and collaborative applications including enterprise social networks.
The 3rd platform pillars of Big Data, social, mobile, and cloud will continue to drive virtually all of the growth in IT spending, while spending on 2nd platform technologies will remain effectively flat.
Meanwhile, although some emerging markets remain constrained by macroeconomic and geopolitical wild cards, there is now significant pent-up demand for IT investment that will drive stronger growth next year in markets including India, Brazil, and Russia.
Pent-up demand has already driven a significant rebound in both consumer and enterprise IT spending in China this year, as confidence stabilizes. While mature economies are still driving the upside in 2014, emerging markets will once again dominate in 2015.
Cold snap and wild cards impacted IT spending
Some IT market segments performed weaker than expected in the first quarter of 2014 (1Q14), in line with the weather-related slowdown in US output and the impact of wild card events including the conflict in Ukraine.
In particular, an overdue enterprise infrastructure refresh cycle was disrupted by short-term declines in business confidence. However, strong underlying demand for this investment cycle will drive improvements in the server, storage, and network infrastructure markets in the coming months.
“At the beginning of 2014, we asserted that businesses would choose to fix the roof while the sun was shining,” said Stephen Minton, vice president in IDC’s Global Technology & Industry Research Organization (GTIRO).
“Unfortunately, the weather was literally much colder than expected during the first quarter. The good news is that the US economic outlook has already brightened and this will drive a period of moderate but long-awaited investment in mission-critical infrastructure over the next year. However, accelerating adoption of cloud services will continue to impact sales of traditional on-premise equipment, packaged software, and IT services. This capital spending cycle will be mild by historical standards.”
PC refresh stronger, tablet shipments weaker
The commercial PC refresh has proven stronger than originally forecast. As a result, IDC now forecasts PC spending will increase by 3.5 percent in 2014 (the fastest pace since the post-financial crisis rebound of 2010). Western Europe has also seen an improvement in PC shipments, although PC spending in Europe will still be down by 1 percent due to average price declines.
The PC cycle has already driven a market upturn in Japan, where economic growth and upcoming tax increases drove a surge in capital spending in 2013 (PC spending in Japan increased by 6 percent last year, but will decline by -4.5 percent this year).
“The end of support for Windows XP is obviously part of the story, but there has also been a transition of some spending from tablets to PCs as consumers and businesses have allocated disposable income and IT budget to replacing older notebooks and desktops rather than upgrading their relatively new tablets,” said Minton.
“The tablet market is also more sensitive to economic wild cards and price competition, now that penetration rates have increased. There’s still plenty of growth ahead for tablets, however, and it would be premature to say that improvements in the consumer PC market represent anything like a reversal of the long-term shift to tablets and hybrids over the long term.”
The US tablet market is now forecast to increase by just 2 percent this year, but will rebound to 7 percent growth in 2015 as the PC cycle begins to wane.
Worldwide tablet spending has slowed from 29 percent year-over-year growth last year to 8 percent in 2014, but will accelerate back to double-digit growth next year (10 percent). Penetration rates in emerging markets such as China will continue to increase, while some enterprise spending will shift back to tablets.
Pent-up demand and mobile driving growth in China
The economic slowdown in 2013 had a negative impact on IT spending in China, but this also created a significant swell of pent-up demand that is now driving improvements in technology investment.
IT spending growth in China decelerated to 8 percent last year but is on course for 13 percent growth in constant currency in 2014.
According to Minton, “Smartphones are a large factor in China’s growth as Chinese manufacturers have successfully expanded the customer base with new, price-competitive products that have driven overall volume. But while smartphones are a big part of the story, there has also been a significant upturn in business spending on infrastructure and software.”
Excluding mobile phones, IT spending in China will increase by 5 percent this year (up from growth of just 2 percent, excluding phones, in 2013). Server spending in China will increase by 7 percent (compared to 0 percent in 2013), storage spending by 8 percent (up from 1.5 percent in 2013), and software by 9 percent (up from 7 percent last year), but overall market growth is still weighed down by the declining PC market.
Other emerging markets are likely to improve over the next 12 months as business confidence stabilizes. IT spending in India will increase by 15 percent next year, up from 8 percent in 2014. In Brazil, the market will accelerate from 10 percent growth this year to 13 percent next year.
In Russia, where the crisis in Ukraine has damaged business and investor confidence since the beginning of the year, the market is set to decline slightly in 2014 before rebounding to 7 percent growth in 2015.
Mature economies have remained more stable since last year, with market growth often outpacing expectations. The US IT market will increase by 4 percent this year, and Western Europe will maintain a 2 percent growth rate overall.
Total worldwide IT spending will reach almost $2.1 trillion in 2014. Including telecommunications services, the worldwide ICT market will increase by 4 percent to $3.7 trillion, with telecom services growth of 4 percent driven by mobile data services and increasing broadband penetration.