IT Spending Growth Will Not Be As Robust In 2023
February 27, 2023 Timothy Prickett Morgan
If you are like other companies in the world, your IT budget as 2023 is getting caught in the pinchers between inflation making IT hardware, software, and services more expensive and the jitteriness of the economy, both locally and globally, that is making company owners and managers a little less hesitant to spend in the first place.
The good news, as we are fond of saying, is that an economy cannot go to zero unless there is a zombie apocalypse, a nuclear war, an electromagnetic pulse event, or an invasion by aliens. The funny thing about February 2023 is that there was concern about the latter three and the first was on our minds thanks to The Last Of Us. (Which we are watching on Sunday nights and which is making us have second thoughts about eating mushrooms. . . .)
The economists at Gartner, who watch global IT spending like a hawk and who have a model that is based on the financial results of over 4,000 companies and surveys of IT shops, know about inflation and worry, and have thus revised their IT spending expectations for 2023 downwards. Back in October 2022, when the last forecast was done for 2023 global IT spending, the expectation was for 5.1 percent growth. With the revision, Gartner has slightly increased the amount of spending it thought companies did in 2022 while at the same time cutting back on the amount of spending it expects will be done in 2023. And that means the growth rate is dropping to 2.4 percent to $4,491.4 billion when all spending is added up in each country and currency and converted to US dollars.
We don’t care much about device spending or telecom spending when it comes to the IT budget, and we realize that this is a very big part of the home budget, too, so we always look at the spending on what we call “core IT” when we contemplate the Gartner forecasts, which takes out the spending on PCs, tablets, and smartphones and also takes out the spending on communication services.
The table below shows all of the categories in the Gartner IT spending reports (with their latest updates) from the data released to the public between 2012 and 2012 (inclusive) plus the latest 2023 forecast.
That core IT spending is – datacenter systems, enterprise software, and IT services – is actually expected to grow by 6.3 percent to $2,382 billion, which is down from the 8.7 percent growth and $2,454 billion level in the October 2022 forecast. Now before you get all excited and such, we would remind you that inflation is expected to grow at around 6.5 percent this year globally (and around the same in the United States), and so that growth is not really growth at all. If you look at spending on datacenter systems – servers, storage, switching, and other stuff – and adjust spending to 2021 US dollars all the way back to 2012 and up through the 2023 forecast, then the $213.9 billion in the 2023 forecast is more like $185 billion in 2021 dollars.
Here is what actual spending in inflation adjusted dollars looks like over time:
It looks like we set a new spending level in 2014 and with the exception of the 2018 bump – caused mostly by massive investments in infrastructure by the hyperscalers and cloud builders and pretty healthy spending by enterprises – it has been trending downwards ever so slightly.
If you want to feel better and argue for a bigger IT budget, only show the blue line and don’t even mention the black line.
Over the 13 years in this dataset from Gartner, datacenter systems spending (not inflation adjusted) has grown by a factor of 1.52X, from $141 billion in 2012 to $213.9 billion in 2023. IT services has grown almost by the same amount, a 1.49X growth from $878 billion in 2012 to $1,313 billion in 2023. But enterprise software spending (which only counts third party applications and which does not take into account the enormous investment in homegrown code) for licensed and subscribed software running on premises or in co-location facilities as well as SaaS services, has grown by a factor of 3.07X, from $279 billion in 2012 to $856 billion in 2023.
Over the time period shown, the share of core IT spending that comes from datacenter systems has averaged 10.8 percent, with slightly higher rates from 2014 through 2018 and slightly lower from 2019 through 2023. Enterprise software spending has grown from somewhere around 21 percent to 22 percent in the early part of this dataset to around 35 percent of the total core IT spending. IT services, while still being the largest part of core IT spending, is seeing its share trend down from about 67 percent the pie more than a decade ago to 55 percent in recent years.
Having said all of that, growth is still growth, even if it is perhaps not enough to cover rising costs at IT vendors. But it will not be surprising to see Gartner revise this down as the year goes on. A lot depends on sentiment and actual spending in the second half of the year. We would not be surprised to see the forecast for 2023 to inch down and then after 2024 is well under way, to be recast higher than the most pessimistic forecast after the fact if IT spending picks up in the second half, as many expect.