The market research firm Gartner sent a chill through the IT industry this week with a forecast that says global IT spending will decline 1.3 percent to $3.66 trillion in 2015 instead of increasing as originally predicted.
Gartner says the root of the problem is the higher value of the U.S. dollar, which in effect devalues other currencies in a way that makes products from the U.S. appear to be more expensive. Gartner says this shift in the valuation of the dollar has introduced a state of shock into IT purchasing processes in markets such as Western Europe, Russia, and Japan. In these regions of the world, the increased value of the U.S. dollar is tantamount to a price increase for products manufactured in the U.S.
The effect of SaaS applications
Another factor influencing Gartner’s shift from their initial forecast of 2.4 percent growth is the move to software as a service applications in the cloud, which Gartner notes is starting to have a material impact on spending. For example, Gartner says the adoption of Microsoft Office 365 is depressing traditional Microsoft Office software, and companies that use of SaaS applications in the cloud also are not as inclined to upgrade their PC systems.
Gartner breaks down its IT spending forecast as follows:
- IT Services revenue will reach $942 billion, a 0.7 percent decline over 2014
- Data center systems spending will reach $142 billion, a 0.4 percent increase over 2014
- Enterprise software spending will reach $320 billion, a 2.3 percent increase over 2014
- Device spending will reach $685 billion, a 1.2 percent decline over 2014
- Telecom services will reach $1.57 trillion, a 2.6 percent decline over 2014
What this means for U.S.-based IT service providers
As far as IT services are concerned, Gartner says the largest spending reductions are coming in the area of implementation services, particularly in the U.S. Although the oil and gas industry is only 1 percent of the IT services market, Gartner says that sector historically reacts quickly when oil prices drop, often cutting back on spending 20 percent or more. Because the U.S. is a large oil producer and a large market for IT services, the most significant spending reductions on services is expected to take place in the U.S. through 2016, says Gartner.
Regardless of the specifics, the one thing that is certain is that there is significant volatility in the market that is beyond the control of any one IT services firm. In addition to geopolitical forces at work, the way IT is consumed is fundamentally being changed with the rise of cloud computing.
The degree to which IT services organizations will be affected by all this will vary widely. Firms based in India, for example, are more likely to bear the brunt of the impact of a higher dollar value than a small IT services firm based in the U.S. that doesn’t derive much revenue from overseas.
But even within that macroeconomic trend, it’s also clear that a shift in how IT dollars are being spent now has a direct impact on IT services firms both large and small.