IT spending set to ride out wave of global economic uncertainty

Market watchers see device spending downturn as blip in robust bigger picture

With uncertainty hanging over the global economy, Gartner sees IT spending holding steady at 3 percent growth for 2022, with both winners and losers in different industry segments.

The global IT research firm predicts worldwide IT spending will total $4.5 trillion this year, up 3 percent from 2021 in dollar terms, but more (5.9 percent) if currency fluctuation against a strong greenback are accounted for.

As the world emerged from pandemic lockdowns, it faced the combined threat of geopolitical instability in the form of Russia’s invasion of Ukraine and inflation at levels not seen for 40 years on both sides of the Atlantic. Meanwhile, to combat rising prices, central banks are raising interest rates after a long period of less than 1 percent.

But overall the IT industry is set to weather the storm with a few exceptions. Spending cutbacks on PCs, tablets and printers by consumers, causing spending on devices to shrink 5 percent to $768 billion in 2022, according to the latest Gartner forecasts.

It had already forecast worldwide PC shipments would decline by 9.5 percent in 2022 driven by a collapse in consumer demand.

But strength in cloud, software, datacenters and IT services makes up for weakness on device spending.

Growth in cloud spending is set to hit 22.1 percent in 2022, up from 18.4 percent growth in 2021. It is included in the category for cloud consulting and implementation and cloud managed services which are set to grow 17.2 percent in 2022 reach $255 billion in 2022, helping to drive the overall IT services segment to 6.2 percent growth in 2022.

Software too was buoyed by business investment. It is set to grow at 9.6 percent this year to reach $902 billion worldwide, although growth has dipped from 14.7 percent in 2021.

Despite the challenges expressed in macroeconomic data, businesses continue to invest in a set of initiatives that fall under the banner of digital transformation.

Speaking to The Register, John-David Lovelock, distinguished research vice president at Gartner, said: “Could you imagine a firm like Uber or Airbnb or even your bank cutting back on IT spending? That's how you engage. Every organization pretty much is going through a digital transformation. They are asking how they provide products, services or offerings — the value proposition — to customers differently? How do they get revenue from customers differently and recognize it in a new environment? They have more to do, less time to do it and less people to do it. With IT overall still in that sort of 4 or 5 percent of total spending, even if a company is looking to save money, there is not a lot of money to be saved in IT.”

While inflation was a concern, it was being driven by high oil and gas prices, which local adjustments in monetary policy could not ruffle. At the same time, interest rates had yet to return to their long-term norms, Lovelock argued.

Likewise, although a number of the G20 nations could see a “shallow and technical” recession in the short term, this was unlikely to hit IT spending patterns.

“There's nothing going to happen so dramatically that a large group of people going to change their IT directions. These things are set for the long term, with deep recurrent spending requirements and very little room to fiddle at the edges. The companies that don't invest in the short term, will not be successful in the near term and may not be here in the long term. This is a transformational time. Every corporation right now should be focused on being the company they need to be post-pandemic,” Lovelock said.

However, the end of cheap money would hit venture capitalists and the tech start-ups that rely on them, he added. While companies which launched in cloud and software-as-a-service markets in the last three years had seen mushrooming valuation, the investment environment was seeing an adjustment.

“In 2020, companies that had the blessing of recurrent revenue, either through managed services or the cloud, saw valuation of enormous multiples on earnings. With the promise of great recurrent revenue, venture capital funds had access to virtually free money and they were throwing cash around. Now we're seeing VCs are saying it's become incredibly hard to raise money now. No, it's normal. It was really, really easy six months ago. If you've only been raising money for the last two years, you don't know how to raise money,” Lovelock explained.

But problems for startups and VCs should be no concern to businesses buying IT. “If you got in early with a start-up, you're going in with the expectation that it might not work. It shouldn't be a surprise [if it fails],” Lovelock said.

Recent news has seen IT vendors making adjustments as they come into their results season. For example, Microsoft has laid off more than a thousand staff, less than 1 percent of the 180,000-strong global workforce. The move was a result of evaluating “our business priorities on a regular basis, and make structural adjustments accordingly," the Redmond giant said.

Lovelock notes that digital transformation and the shift to the cloud was favouring the biggest vendors. In IT services, which cloud is part of, 2021 saw the top seven vendors grab 47 percent of the increase in spending, he said.

While the world economy shifts some things don’t change. In big tech, being big is an advantage. ®

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