Worldwide IT spending is expected to accelerate in 2014 after dipping to its slowest pace of growth in 2013 since the financial crisis. Overall tech spending is on course to increase by 4% this year at constant currency, reaching $2.04 trillion, down from last year’s growth of 5% due mainly to the slowdown in key emerging markets, including China and Russia. IDC forecasts that in 2014, a rebound in China and continued momentum in the U.S. and Europe will see a return to overall industry growth of more than 5% (reaching $2.14 trillion).
Smartphones Still Driving Growth, but Infrastructure Set for Recovery
In fact, almost half of this year’s industry growth is due to continued strength in smartphone and tablet shipments. Excluding mobile phones, IT spending will increase by only 2.6% this year at constant currency (just 0.7% in U.S. dollar terms, based on year-to-date exchange rates). Enterprise IT spending in many regions has been tepid since last year, with weaker spending on PCs, servers, and storage than previously expected. Tentative signs of stability in commercial PC shipments during the third quarter, however, may foreshadow the gradual recovery in enterprise infrastructure investment which we expect to unfold in the next 12-18 months as a broad-based capital spending cycle kicks into gear. Spending on servers, storage, and enterprise networks will increase by just 1% in 2013 before accelerating to growth of 4% next year.
The overall industry has been propped up by continued strength in mobile devices, especially smartphones, but the slowdown in emerging markets was another headwind for infrastructure-focused tech firms on top of government sequestration in the U.S. and continued sluggish growth in Europe.
U.S. Market Is Resilient, Despite Politics
While the United States is on course to post IT spending growth of 5% this year, this translates into just 3% excluding mobile phones. Enterprise spending in the U.S. has been relatively resilient, given the ongoing political volatility, but spending on PCs and servers will decline this year while storage investment is flat. Both the storage and server markets in the U.S. are expected to improve in 2014, but PC spending is likely to remain weak in spite of signs of stability in the third quarter as tablet cannibalization continues at lower price points.
“The U.S. market has held up pretty well, all things considered,” added Minton. “The main headwind, aside from uncertainty over the next round of political dogfighting, is cannibalization as tablets continue to eat into PC sales and as the Cloud eats into traditional IT services revenues. This cannibalization trend is seen across all geographies, and will be a constraint on IT spending even while the macroeconomic environment improves.”
Europe and Japan Have Stabilized
Market conditions are gradually improving in Western Europe, where overall IT spending is on course for growth of 2% this year (1% excluding phones), and where economic momentum has taken a turn for the better in many countries. IDC believes this gradual recovery will continue next year, translating into IT spending growth of 3% driven mainly by strengthening sales of commercial software.
This year has also seen a moderate improvement in Japan, driven by the government’s short-term policy initiatives; while IT spending is on course to be flat in 2013 (0% growth), this marks an improvement from IDC’s previous forecast of a 1% decline.
“Momentum in developed economies has been broadly positive since the start of 2013,” said Minton. “The gradual turnaround in Europe is restoring business confidence, leading to a strengthening of our assumption that next year will be better than this year for most IT vendors. In Japan, some sectors have performed stronger than previously expected. But while the news from developed economies has been mostly positive since January, the drag on overall industry growth this year has been the slowdown in emerging markets.”
China Will Rebound in 2014
IT demand will accelerate in China next year, in line with the expectation that macroeconomic growth and business confidence will improve. In China, overall IT spending is on course to increase by just 8% this year, the weakest pace of growth since 2008; next year, IDC forecasts an acceleration of growth to 14% led by strengthening sales of PCs, servers, storage, software, and IT services. Growth in India will remain broadly strong, driven mainly by smartphones and tablets, but IDC expects a slowdown in PC sales after state-level government initiatives helped to drive strong growth in 2013 and there are also signs of weakening growth in other sectors. A gradual deceleration in tech spending is also emerging in Brazil, while in Russia the economic slowdown has driven overall industry growth to just 1% this year (from 15% in 2012). A rebound is likely to reach 10% growth in Russia next year, driven by smartphones, software, and services.
Growth in emerging markets will continue to outpace the U.S., Europe, and Japan, in spite of these bumps in the road, and that any retreat from those geographies will only be to the benefit of emerging competitors from China and elsewhere with global ambitions of their own.
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