CIOs in Europe warned: Be wary of tech price inflation

Weakness of local currencies vs the dollar will force US vendors to act and act again

Chief information officers in Western Europe should buckle up for enterprise tech price inflation in 2023 unless local currencies stage something of a dramatic recovery against the US dollar.

Or so says everyone's favourite soothsayer, Gartner, which was in forecasting mode as the close of the year looms and thoughts turn to next.

Western Europe is projected to record the highest growth rate in EMEA during 2023, reaching $218.7 billion in customer spending. For the current calendar year, the UK is expected to outgrow France and Germany in local currency with a rise of 8 percent in British pounds.

"However, because of the weakness of the British pound compared to the US dollar, it translates into an overall decrease in IT spending of 2.5 percent in US dollars," said John Lovelock, Gartner distinguished VP analyst.

He said inflation levels are being compounded by the weakening of the pound and the Euro relative to the US currency.

As such: "Western European CIOs need to be wary of price increases from IT vendors. Insist on a breakdown of the root cause(s) for price increases and look for win-win strategies to enhance strategic partnerships that also consider nonmonetary benefits."

The cost of public cloud services is predicted to jump by almost a third in Europe next year, and by a fifth in the US as providers deal with an end to cheap borrowing.

How much will be spent on tech in EMEA?

In terms of the wider forecast, IT spending in EMEA is estimated to inflate 3.7 percent year-on-year to $1.3 trillion in 2023. Gartner's global IT spending predictions is for growth of 5.1 percent to $4.6 trillion.

EMEA – that ill-formed economic entity comprising 115 countries concocted by American businesses – has suffered from currency shift over the last year, impacting demand for IT products in the consumer sector.

"The biggest hindrance right now is the euro to US dollar exchange rate," Lovelock told us. "For devices that are built in US dollars terms, pretty much everything costs more in euros than they do in USD. It's suppressing demand a little, plus there's no big need to refresh right now," he said.

Breaking down IT spending in EMEA – which spans a neat section of four time zones – datacenter is estimated set to grow 1 percent next year, and software, which includes some cloud spending, by 8 per cent. This contrasts with global IT spending, which would see the two categories grow at 3.4 percent and 11.3 percent respectively, according to Gartner.

Lovelock told The Register the differences were explained by the relative lack of hyperscaler locations in Europe compared with the US.

"Enterprises around the world got rid of some of the technology deficit they had built up in 2020 and 2021. This year, that's happened in Europe. The service providers – the ones that sell colocation, hosting, and cloud platform-as-a-service – are buying as many servers as they can get their hands on. That's the real driver behind server growth this year and next. Europe is underweighted on hyperscale datacenters in comparison to the US," he said.

Europe in particular has been hit by the war in Ukraine, which according to vendors such as automation specialist UiPath, is affecting business confidence across Europe.

Yet Russia's illegal invasion of the eastern European nation was not a factor in the relative weakness of EMEA IT spending, Lovelock said.

"It's not having any different influence [to the rest of the world] at this point. When the shock came in late Q2, to an extent there were a lot of prognostications that Russia's invasion of Ukraine wouldn't last past the summer. When Putin formally signed the annexation of those areas in the Ukraine, that pretty much ended anybody's hopes of a short conflict.

"So to that extent, the things that were being done on sort of a temporary ad hoc basis, such as securing supply chains … are now longer-term initiatives at the economic level. At the IT level, there is really no change. I don't think anybody was planning for IT services coming back online in Ukraine, Belarus and Russia," he said.

As for CIOs, Gartner said that in troubled times they tend to hesitate to sign new contracts, commit to long-term projects or work with new tech vendors. Lovelock said: "Enterprise IT budgets are not central to this hesitancy, and businesses in EMEA will increase their IT budgets in 2023." ®

 

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