IDC Revises 2014 Global IT Spending Projections Downward

May 27, 2014 Timothy Prickett Morgan

When it comes to global IT spending, any shift of a percentage or two means a shift of tens of billions of dollars up or down. The prognosticators at Gartner took their IT spending projections down a notch a few weeks ago, and now the economic forecasters at IDC have taken a look at the situation and have followed suit.

Specifically, the Worldwide Black Book now says that IT spending across the world will rise by 4.1 percent as measured in both constant currencies and in US dollars. IT spending worldwide across hardware, software, and services rose by 4.5 percent last year, and IDC had been projecting for growth of 4.6 percent in its latest forecast for 2014. Expressed in US dollars, the global IT market increased by 2.5 percent last year, compared to a 4.5 percent growth rate at constant currency. Given the prevailing currency translation rates during the first quarter, IDC says to expect for global IT spending as expressed in US dollars to rise by 3.4 percent against that 4.1 percent rate at constant currency.

IDC says that political uncertainty in Ukraine and the slowdown in China as the country tries to transform itself to a consumer economy and cutting back on its real estate boom and manufacturing output are adding to the general uncertainty in the economy. Spending on mobile devices is also slowing a bit, and that is curtailing overall revenues in the IT sector.

“As smartphone growth continues to cool from the phenomenal expansion of the past few years, tablet shipments have performed weaker than expected over the past couple of quarters,” explained Stephen Minton, vice president of the Global Technology & Industry Research Organization at IDC. “This volatility, coupled with the macroeconomic uncertainty in many emerging markets, is somewhat masking a more positive underlying foundation for enterprise IT spending, with firms continuing to invest in working off that pent-up demand to replace old servers, storage and network gear. Some of that spending is also driving IT services, despite the fact that an increasing number of businesses are moving more of their traditional IT budget to the Cloud.”

That said, IDC’s economists expect for capital spending to pick up in the second half as companies replace aging servers, storage, and switches. There is reason to expect for spending in China to pick up as well as it plays catch up after a period of slowing down that started in the middle of last year as the Chinese government was putting together its next five-year plan. If you take mobile phones out of the IT spending numbers, then spending on the remaining items–data center stuff as well as PCs–is now projected to increase by 3.1 percent at constant currency, which is a smidgen better than the 2.9 percent growth measured in 2013.

Interestingly, IDC says that by the end of 2014, infrastructure clouds will represent 15 percent of all spending by all enterprises for server and storage capacity. (This is not the same thing as saying that those companies providing infrastructure cloud services will account for 15 percent of raw server and storage capacity; IDC did not give that number out, but the spread between the two is, generally speaking, part of the profit of the cloud builders.)

China has been a wild card for the past two years, and all of the major IT suppliers who were doing well in the Middle Kingdom have had to change up their strategies to react to a slowdown there. IDC said that economists were projecting for gross domestic product to drop below 7 percent in 2014 and 2015, and that the bursting of the real estate bubble in China could knock a recovery in IT spending in the country. Assuming the real estate bubble doesn’t burst this year, then IT spending in China should go back up to 10 percent, accelerating as GDP decelerates, but at the moment IDC says to expect a slowdown in 2015 after some catch-up spending.

“China still has a lot of room for growth, and the slowdown in tech spending last year means that a period of catch-up is inevitable,” said Stephen. “As long as the economy remains fairly stable in the rest of 2014, the market should perform better than last year, although growth will likely cool again after that pent-up demand has been dealt with.”