IT Spending Growth To Slow In The Coming Years
January 24, 2022 Timothy Prickett Morgan
It has been a weird couple of years for IT organizations due to the outbreak of the coronavirus pandemic. So many normal patterns have been disrupted that it is sometimes hard to imagine that things can go back to, well, normal. But if the analysts at Gartner are correct, then 2022 will be the year that IT departments start thinking about the future again instead of triaging problems caused by the pandemic, and it will also be a time of more conservative IT spending growth.
Last week, Gartner put out its revised IT spending figures for 2021 and also updated its forecast for 2022 and also added 2023 to the forecast, and one of the most interesting things is that overall IT spending is going to moderate a bit from the record growth seen in 2021, when the overall market (including devices and telecom services) grew by 9 percent to $4.24 trillion and what we call the core IT market (excluded to datacenter systems, enterprise software, and IT services in the Gartner dataset) grew by 11.9 percent to $2.01 trillion.
The other neat thing in the latest IT spending figures, which you will only see if you look at the forecasts and revisions as they come out a couple of times a year, is that the lull in spending was not as bad in 2020, as the pandemic hit, as Gartner and other market researchers had expected. Overall IT spending (including spending on PCs, smartphones, and tablets as well as for telecom services) rose by 1.4 percent to $3.9 trillion, and core IT spending rose by a very healthy and normal 4.8 percent to $1.79 trillion.
While this history is all interesting, and kinds of sets the error bars on prognostications, what everyone wants to know this time of year is what the future holds.
“2022 is the year that the future returns for the CIO,” explained John-David Lovelock, distinguished research vice president at Gartner, who puts together the IT spending forecasts. “They are now in a position to move beyond the critical, short-term projects over the past two years and focus on the long term. Simultaneously, staff skills gaps, wage inflation and the war for talent will push CIOs to rely more on consultancies and managed service firms to pursue their digital strategies.”
Here is what the current forecast looks like for 2022 and now 2023:
In terms of growth rates, Gartner expects for 2023 to look very much like 2022, with 5.1 percent growth in overall IT spending to $4.45 trillion in 2022 and another 5 percent growth in 2023 to $4.68 trillion in 2023.
Lovelock noted one interesting transition that took place in 2020, which is significant, and that is that that was the first year that spending on cloud-based enterprise application software was larger than spending on on-premises enterprise software. And moreover, by 2025, Gartner expects that spending on cloud enterprise software will be twice as large as spending on software licenses running atop on-premises gear. Almost all of the growth in enterprise software is coming from the switch from on premise to cloud applications and middleware.
As you can see from the chart above, spending on datacenter systems – servers, storage, and switching – will be steady and grow modestly, at least compared to the growth rates for enterprise software and IT services. Again, this is driving in part by the shift from on premises to cloud.
Just for fun, we did some comparisons that make the growth in spending on various parts of the IT stack more approachable. If you compare datacenter systems spending in 2012 to 2021, which are ten years apart from each other, spending has increased by a factor of 1.53X against the core IT spending that has grown by 1.55X. They track very tightly. Enterprise software spending over the same term has grown by 2.17X while IT services spending has only grown by 1.33X. In general, the core IT part of the market grows by 3 percent to 5 percent more than the overall market, and telecom services, while huge, were in a steady decline but are recovering a bit looking out into 2022 and 2023.