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Hardware spending drives IT growth in 2010

But not enough to make up for 2009 hardware crash

With so much bad news in the economy for so long, everyone is looking for a little good news.

Well, the server business is perking up, and if you think server spending is a leading indicator of IT spending (as I do) and that IT spending is now a key component of all capital spending and therefore a pretty good indicator of how the economies of the world are doing (as I do), then maybe the Great Recession is receding. Maybe things are leveling off and there is some room for growth, allowing the IT economy in which we all make our livings to crawl its way back to early 2008 levels.

The latest statistics coming out of market researcher IDC indicate that IT spending is on the rise this year and is continuing to strengthen, but don't expect a gain that makes up for the losses during the recession. That ain't gonna happen, says IDC.

But, when reckoned in local currencies in the countries of the world, global IT spending is now projected to rise by 3.8 per cent (in what is called constant currency) to $1.47trn; at current exchange rates for the US dollar, the growth is closer to 5.6 per cent. Last year, IT spending (in constant currency) fell by 4.2 per cent, which converted to a decline of 7.3 per cent in US dollars.

Hardware took the big hits during the downturn, and there is pent-up demand for new server, storage, and networking gear at many companies, and ditto for new PCs and laptops for end user desks. And thus IDC believes that hardware spending will rise by 6.4 per cent in 2010 (reckoned in constant currency), while spending on software will only rise by 3.1 per cent and services will be relatively flat at 1.5 per cent compared to 2009.

"IT spending growth in the US and emerging markets has been strong during the past two quarters," explained Stephen Minton, vice president of worldwide IT markets and strategies at IDC.

"Some of this is down to easy comparisons with the same period a year ago, but it also reflects very real pent-up demand for infrastructure spending, including investment in solutions such as virtualization and information management. Just as capital spending on hardware is the first thing to fall in a recession, it's also the first thing to come back up for air when IT budgets are surfacing above water."

IT shops are skittish, however, focusing on short-term projects with bigger paybacks, and Western Europe is a bit jumpy given the deteriorating state of the economy in Greece and the spillover into Italy, Portugal, and Spain. Total IT spending in Western Europe was down 6.5 per cent in local currencies (13.5 per cent when converted to US dollars), and is expected to climb back to flatness in 2010.

You may be thinking that Western Europe is no big deal, but it accounts for a third of worldwide IT spending. Japan is still weak, and after an 11.1 per cent decline in IT spending in 2009, IDC is projecting a 2.2 per cent decline there in 2010. (Those are constant currency figures.)

China is expected to boost IT spending across hardware, software, and services by 13.7 per cent this year, and India will grow by 13.8 per cent.

Assuming a gradual recovery in Europe and Japan, IDC is tentatively forecasting a 5.5 per cent increase in IT spending worldwide in 2011. ®

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