Apr 28 2017

Why Might Enterprise IT Spending Be Lower Than Expected? The Cloud

Research firm Gartner expects weaker global IT spending this year due to a strong dollar and enterprises’ shift away from traditional server infrastructure.

IT spending worldwide is going to be lower than expected this year, according to Gartner, thanks in part to the continued shift away from legacy infrastructure to the cloud.

Earlier this month, Gartner slashed its forecast for global IT spending roughly in half. The research firm now projects IT spending will be $3.5 trillion in 2017, which would represent a 1.4 percent increase from 2016, but is down 1.3 percent from the firm’s fourth-quarter forecast of 2.7 percent.

“The strong U.S. dollar has cut $67 billion out of our 2017 IT spending forecast,” John-David Lovelock, research vice president at Gartner, says in a statement. Gartner expects these currency headwinds “to be a drag on earnings of U.S.-based multinational IT vendors through 2017.”

Shift from Servers to Cloud Drives Down Spending

However, currency fluctuations are not the only thing driving down Gartner’s IT spending forecast.

The data center system segment of the IT market is expected to grow at a rate of 0.3 percent in 2017, which would be up from a shrinking market in 2016. However, Gartner says the segment is experiencing a slowdown in the server market.

“We are seeing a shift in who is buying servers and who they are buying them from,” Lovelock says. “Enterprises are moving away from buying servers from the traditional vendors and instead renting server power in the cloud,” from companies like Microsoft and Google, he notes.

That shift has led to lower spending on servers, which is impacting the larger data center market, he says.

Gartner expects the external controller-based storage segment to decline, but at a slower rate than before, according to the forecast. “Additionally, the ECB segment, although still suffering from long-term structural challenges from cloud and alternative storage architectures, is benefiting from strong demand and component constraints in the solid-state array segment in particular,” the forecast says.

Growing Enterprise Software Market

Globally, Gartner expects the enterprise software market will grow by 7.3 percent in 2017, reaching $394.8 billion in constant dollars, a slight increase over the previous forecast. However, in U.S. dollars, enterprise software is expected to grow 5.5 percent ($351 billion) in 2017, slower than the firm’s forecast from the fourth quarter of 2016.

“This is predominantly due to a stronger U.S. dollar against the euro, though the impact of exchange rate shifts is effecting multiple regions,” Gartner says. “Through 2021, we expect the market to grow at a 7.2% [compound annual growth rate] in constant currency. This breaks down as an 8.8% CAGR for enterprise application software, and a slower 5.8% CAGR for infrastructure software, in constant currency.”

Gartner says a change in its expectations for the IT operations management market, particularly in the automation tools and IT service support management tools subsegments, resulted in a new five-year CAGR of 7.8 percent.

“This change is focused entirely in North America where, driven by the availability of lower-cost cloud offerings, the number of organizations expected to move to the cloud within the forecast period has increased,” Gartner says.


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