Gartner Shaves 2018 And 2019 IT Spending Projections
November 26, 2018 Timothy Prickett Morgan
There are a lot of different pressures in the 185 countries that comprise most of the economic activity on Earth, and there is no shortage of uncertainty out there. But two things are always constant here in the late 20th century and the early 21st century. The first is that uncertainty is always there, even though it gets more or less volatile from time to time. And the other is that companies will continue to invest in hardware, software, services, and telecom services.
They have no choice, living in the future as we do.
The prognosticators at Gartner have taken another gaze in their crystal balls to give an update on what they think will happen with IT spending here as 2018 is coming to a close while offering a preview of what they think will happen next year in 2019. The bad news is that Gartner is projecting that overall IT spending levels will be lower than they thought when we last took a look at projections from Gartner and its rival, IDC, back in June. But the good news is that the decline is mostly due to a slight dip in spending for devices (PCs, tablets, and smartphones), for IT services, and for communications services. The further good news is that spending on datacenter systems – servers, storage, and networking – is actually going to be higher than expected in both 2018 and 2019, and so will spending on enterprise software. This bodes well for systems like Power Systems running IBM i and the application software stacks that companies buy to run atop them.
“While currency volatility and the potential for trade wars are still playing a part in the outlook for IT spending, it is the shift from ownership to service that is sending ripples through every segment of the forecast,” explained John-David Lovelock, research vice president at Gartner, in a statement accompanying the figures. “What this signals, for example, is more enterprise use of cloud services – instead of buying their own servers, they are turning to the cloud. As enterprises continue their digital transformation efforts, shifting to ‘pay for use’ will continue. This sets enterprises up to deal with the sustained and rapid change that underscores digital business.”
As usually happens, Gartner has tweaked some of its figures for 2017 as part of its forecast for 2018 and 2019, so some of the percent change in the latest forecast is due to that. Gartner held pat and still believes that datacenter systems spending was $181 billion worldwide in 2017, but now thinks it will rise by 6 percent across all of those hardware categories combined to $192 billion, slightly higher than the 3.7 percent growth it was talking about back in June to $188 billion. Gartner now believes that enterprise software spending – including everything from operating systems to middleware to databases to application software – hit $369 billion in 2017, instead of the $352 billion level it thought it was at back in June, and now thinks it will rise by 9.9 percent to $405 billion, considerably higher than the $391 million level it projected for 2018 in June. That is an incremental $47 billion in core IT spending in the datacenter in the new projection, an increase of 8.5 percent compared to the latest figures for 2017 in this core datacenter category.
Overall, Gartner is projecting that IT spending worldwide will represent just under $3.7 trillion in spending in 2018, up 4.5 percent, so the core datacenter business is growing almost twice as fast as the market overall. Devices, IT services, and communication services in the aggregate hit $2.99 trillion in 2017, and are collectively expected to grow by only 3.8 percent, dragged down by communication services and, we think, shortages in processors from Intel that is curtailing a reviving PC business. The datacenter is bringing up the IT spending class average. Here is the latest chart outlining this all:
There are some interesting points to make here.
First, while enterprise software spending is up, cloud-based software – what is usually called software as a service or SaaS, a truly ugly abbreviation – is seeing an incredible 22 percent growth rate in 2018. That probably means other kinds of software sales – perpetually licensed code with traditional annual support contracts – is not selling like hotcakes. For all we know, such software is in decline, and we suspect it is as it has been for many years. As Gartner’s analysts correctly point out, companies are interested in providing better experiences for their customers and they are particularly interested in cloud-based customer relationship management (CRM) software to upgrade their game. That said, core enterprise resource management applications, including their supply chain management (SCM) and CRM extensions – an approach to application software that took off in the late 1990s, driven in large part by SAP, Siebel Systems, and PeopleSoft – constitute the bulk of enterprise software revenues, and these are available as licensed software as well as subscriptions that can be deployed on-premises or in the cloud. We see more and more IBM i application software providers either building their own clouds or partnering with those who build their own datacenter infrastructure and sell it on a subscription basis. Security software sales are also growing like crazy, but are starting from a much smaller base and will never drive sales of ERP, SCM, and CRM software, no matter the licensing model.
The second interesting point is that datacenter systems sales are rising even as more and more companies shift at least some of their capacity to public clouds. These infrastructure services are booked in the general IT services category in the chart above, and datacenter systems spending is boosted in part by the massive spending on raw parts and assembled infrastructure systems from ODMs and OEMs by the public cloud providers and the hyperscalers that also offer application services to enterprises.
The third thing to see in these numbers is that spending across the IT sector board is expected to slow in 2019, which is not precisely good news. Datacenter systems growth will drop to only 1.6 percent growth, to $195 billion worldwide. That said, it is a half point more growth than Gartner was projecting back in June for 2019, so there is that. An extra $5 billion is an extra $5 billion. Gartner says that the server portion of the market will have 10 percent revenue growth worldwide in 2017, and will come in at 5.7 percent growth this year, but will go into a decline by 1 percent to 3 percent each year for the next five years. This is a pretty bold statement, and it is not one we necessarily agree with at our gut level.
Enterprise software spending growth here in the fall is about the same at 8.3 percent compared to the summer estimates by Gartner, but at $439 billion in spending, it is $15 billion higher than the June estimates thanks to the upwards revisions for 2017 and 2018 spending in this category. Add them together, and this core enterprise group will see 6.2 percent growth in 2019, to $634 billion. Once again, devices, IT services, and communication services are slowing more and causing the overall global IT spending level to come in at $3.19 billion, up 3.2 percent. In the June projections, when spending in these areas was higher (but spending in the core datacenter were lower), Gartner was talking about $3.85 billion in total IT spending, up 2.8 percent.
As we have pointed out before, the real value of these statistics is for IT managers to see how their own spending in these areas compares, not only in terms of the relative sizes of portions of their budgets, but also in the growth that they project in these areas. Which brings me to another point. There are no direct people costs – programmers, system administrators, various kinds of support staff, and even IT managers and chief information officers – in the table or in the discussion of IT spending. It is hard to say for sure, but we reckon that if these costs were added in, IT spending would be more like $8 trillion globally. And really, these costs also need to be tracked as faithfully as the market researchers do with physical IT stuff, whether it is bought or rented.