Global IT Spending to Significantly Slow in 2016, Reports IDC

Worldwide IT spending is expected to post a major slowdown in 2016, as economic weakness in emerging markets and saturation of the smartphone market combine to result in a significantly slower pace of tech spending growth compared to the past six years, according to research from International Data Corporation (IDC). Having posted annual growth of 5-6 percent in constant-currency terms since recovery from the financial crisis in 2010, the global IT market is expected to increase by just 2 percent this year (in constant currency). Total IT spending on hardware, software, and services will reach $2.3 trillion in 2016. Including telecom services, total ICT spending will increase by 2 percent to $3.8 trillion, according to the latest data from the IDC Worldwide Black Book.

IDC says that IT spending was relatively stable in 2015, in spite of the volatile economy, propelled by another strong year for smartphone shipments, which compensated for a weakening PC market throughout the year. Smartphones accounted for half of the overall industry growth rate of 6 percent in 2015. Spending on cloud infrastructure was also strong throughout the year, resulting in growth of 16 percent for the server market and 10 percent for storage systems. Enterprise spending on software, including Software as a Service (SaaS), posted healthy growth of 7 percent, with strong investment in analytics, security, and collaborative applications. However, the strong U.S. dollar made 2015 “an uncomfortable year” for U.S.-based IT companies. In U.S.-dollar terms, the overall IT market declined by 2 percent last year, and currency-exchange rate volatility remains “a wild card” that could influence the fortunes of IT suppliers over the next 12 months.

“Aside from exchange-rate volatility, IT spending has been relatively stable for the past five years,” commented Stephen Minton, vice president with IDC’s Customer Insights and Analysis group. “Excluding mobile phones, overall tech spending has continued to grow at 3-4 percent each year in constant-currency terms since we recovered from the disruption of the financial crisis. A solid PC upgrade cycle in 2014 was followed by a major cycle of infrastructure spending in 2015, mostly driven by cloud. IT buyers continue to prioritize software investments like data analytics and enterprise mobility, and have increasingly leveraged the service-provider model in order to increase the effectiveness of their IT budgets. Underlying buyer sentiment is strong.”

Weakening China Tech Market

IT spending in China has been a growing source of revenue for tech vendors in recent years, and the market grew by 11 percent in constant-currency terms last year, driven by strong growth in smartphones and cloud infrastructure. However, IDC says it now see signs of increasing maturity in the smartphone market after the phenomenal growth of the past seven years, and this is now expected to result in overall IT spending posting its first-ever decline (-0.3 percent). While the smartphone-slowdown is more heavily related to market maturity than economic weakness, IDC also forecasts a decline in PC sales, and softening growth of spending on servers, storage, and peripherals compared to last year. The software market in China has so far remained relatively stable, but accounts for only 5 percent of overall IT spending (compared to 30 percent for the United States). As a result, IDC says China is more exposed to volatile swings in capital spending, with hardware markets tending to be more sensitive to economic disruption.