Wednesday, 01 July 2015 01:18

IT spend to hit $78.1 billion this year, with services leading the way Featured

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IT spend to hit $78.1 billion this year, with services leading the way Image courtesy of Stuart Miles, freedigitalphotos.net/images

Australian IT spending is forecast to reach almost $78.1 billion this year, an increase of 2.1 percent from 2014, with IT services the largest spending category and software spend the fastest area of growth.

According to the latest quarterly report on worldwide IT spending from Gartner, IT services spending this year in Australia will reach $28.8 billion, while software is the fastest growing segment with spending expected to grow 9.8% this year to reach almost $9.4 billion.

And, across the Tasman, New Zealand IT spending for this year is forecast to reach NZ$11.4 billion, a slight decrease of 0.8 percent from last year. Gartner attributes a decrease in spending on devices (PCs, tablets, printers and mobile phones) and communications services to the overall decline.

More broadly, the Asia Pacific region IT spending is forecast to total US$743 billion in 2015, an increase of 0.7% from 2014, but in constant-currency terms, Gartner says the market is projected to grow 4.5% in 2015, revised downward by 0.5% from last quarter’s forecast.

Worldwide, Gartner reveals that IT spending is “on pace” to total $3.5 trillion in 2015, a 5.5% decline from 2014, with analysts attributing the decline to the rising US dollar.

Gartner says that in constant-currency terms, the worldwide market is projected to grow 2.5%, with its previous forecast in April forecasting IT spending to decline 1.3% in US dollars and grow 3.1% in constant currency.

Of the worldwide figures, Gartner says it wants to stress “that this is not a market crash.”

“Such are the illusions that large swings in the value of the US dollar versus other currencies can create," said John-David Lovelock, research vice president at Gartner. "However, there are secondary effects to the rising US dollar. Vendors do have to raise prices to protect costs and margins of their products, and enterprises and consumers will have to make new purchase decisions in light of the new prices."

According to Gartner, worldwide communications services will continue to be the largest IT spending segment in 2015 with spending at nearly $1.5 trillion. But, Gartner stresses that this segment is also experiencing the strongest decline among the five IT sectors, with price erosion and competitive threats preventing revenue growth in proportion to increasing use within most national markets.

In the device market, mobile phones continue to be the leading segment, according to Gartner, with growth in Apple phones, especially in China, keeping overall phone spending consistent.

Lovelock cautions, however, overall smartphone unit growth will start to flatten. He also says the PC and tablet market continues to weaken, with the expected 10% increase in average PC pricing in currency-impacted countries going ahead, delaying purchases even more than expected. Also revealed by Gartner is that excessive PC inventory levels, especially in Western Europe, need to be cleared, which will delay Windows 10 inventory in the second half of the year.

The Gartner report looks at spending within the data centre systems segment, storage and network markets, saying that both expected to see weaker growth in US dollar terms as a result of the appreciation of the US dollar.

Gartner also says that enterprise budgets for data centre systems in local spending are expected to remain stable for the year, with users expected to extend life cycles and defer replacements as a means of offsetting the price increases.

“The overall near-term data centre weakness is slightly offset by a more positive outlook for the server market. The server market is benefiting from a stronger-than-expected mainframe refresh cycle, as well as increased expectations for hyperscale spending,” Lovelock says.

Enterprise software spending is forecast by Gartner to decline 1.2% this year, with revenue totaling $654 billion. Gartner analysts said many software vendors will try not to raise prices because software as a service (SaaS) is about “market share, not profitability.” Gartner warns that raising prices could take software vendors out of a sales cycle, and “these vendors don't believe they can afford to lose a client.”

On IT services spending this year, Gartner projects a decline of 4.3% for 2015, and expects modest increased spending on consulting in 2015 and 2016, as vendors have demonstrated their ability to “stimulate new demand from buyers looking for help with navigating business and technology complexities, particularly related to building a digital business.”

According to Lovelock, however, the forecast for implementation services has been slightly reduced. “Increasingly, buyers prefer solutions that minimise time and cost of implementation, driving demand for more-efficient delivery methods, out-of-the-box implementation, and lower-cost solutions.

"IT activity is stronger than the growth in spending indicates. Price declines in major markets like communications and IT services, and switching to 'as a service' delivery, mask the increase in activity."

 Worldwide IT Spending Forecast by Sector (Billions of US Dollars)

 

2014

Spending

2014

Growth (%)

2015

Spending

2015

Growth (%)

Devices

693

2.4

654

-5.7

Data Center Systems

142

1.8

136

-3.8

Enterprise Software

314

5.7

310

-1.2

IT Services

955

1.9

914

-4.3

Communications Services

1,607

0.2

1,492

-7.2

Overall IT

3,711

1.6

3,507

-5.5

Source: Gartner (June 2015)

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Peter Dinham

Peter Dinham is a co-founder of iTWire and a 35-year veteran journalist and corporate communications consultant. He has worked as a journalist in all forms of media – newspapers/magazines, radio, television, press agency and now, online – including with the Canberra Times, The Examiner (Tasmania), the ABC and AAP-Reuters. As a freelance journalist he also had articles published in Australian and overseas magazines. He worked in the corporate communications/public relations sector, in-house with an airline, and as a senior executive in Australia of the world’s largest communications consultancy, Burson-Marsteller. He also ran his own communications consultancy and was a co-founder in Australia of the global photographic agency, the Image Bank (now Getty Images).

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