What emerging market woes mean for IT

IT spending will be inhibited by the economic slowdown in emerging markets in 2014, according to the International Data Corporation (IDC), in addition to an inevitable deceleration in the growth of smartphones and tablets.

IDC has lowered its forecasts for Worldwide IT spending growth to 4.6% in 2014 in constant currency terms, down from the previous forecast of 5%.

The research and advisory firm says that, with currency devaluation and inflation likely to inhibit business confidence in many emerging economies in the first half of this year – and with the explosive growth of mobile devices having begun to inevitably cool from the breakneck pace of the past 2-3 years  – overall industry growth will dip slightly from last year’s pace of 4.8%.

IDC does note, however, that mature economies including the US and Western Europe, have begun to invest in overdue infrastructure upgrades and replacements.

Excluding mobile phones, IT spending growth will accelerate in 2014 from 2.9% last year (excluding phones) to 3.4% this year, IDC says.

“The inevitable slowdown in the explosive pace of smartphones and tablets is masking an underlying improvement in many areas of IT spending,” said Stephen Minton, VP in IDC’s Global Technology and Industry Research Organisation (GTIRO).

“Businesses in mature economies are beginning to feel more confident about the economy compared to a year ago, and this is translating into new IT investments. Many businesses will choose to fix the roof while the sun is shining in 2014.”

Volatility in emerging markets

The research firm argues that exchange rate volatility is likely to exert a strong influence over IT revenues for global suppliers in 2014.

In US dollar terms, the IT market grew by just 2.8% in 2013, compared to 4.8% in constant currency, due to the strength of the dollar.

IDC stressed that it’s too early to predict whether the dollar will remain strong throughout 2014, but the Fed’s decision to begin tapering its QE program will exert a strong influence in the first six months of 2014.

“Not only will this create volatility for IT vendors during earnings season, but it may also create economic instability in key emerging markets,” IDC said.

“What goes up, must come down, and emerging markets have been on the down slope since last year,” said Minton.

Cannibalization

Price erosion and commoditisation in hardware have spread to mobile devices, IDC pointed out.

While showing signs of bottoming out, the PC market has continued to post year-on-year declines in revenue terms, and telecom infrastructure investment remains tepid in many countries as carriers compete for a more mature customer base.

“Any increase in the sense of uncertainty surrounding the global economy, will only add to cannibalization and price erosion in the near term,” said Minton.

“IT buyers are already taking a long time to evaluate major IT projects, and focusing on ways to ‘do more with less’ in the face of frugal CIO budgeting. The industry remains vulnerable to an economic slowdown.”

Positive outlook

IDC said that, in spite of ongoing cannibalisation and economic uncertainty, IT market fundamentals are more solid in 2014 than 12 months ago.

The advisory firm pointed to a significant pent-up demand for new servers, storage capacity and network equipment.

Enterprise enthusiasm for new software built around the key 3rd platform solutions of Mobility, Cloud, Big Data and Social, remains strong, IDC says,  adding that consumer enthusiasm for mobile devices and applications remains positive.

“At the end of 2013, we passed the $2 trillion mark in annual IT spending for the first time in history, and $1 trillion in hardware spending,” said Minton.

“This year’s milestones will include half a trillion dollars in spending on mobile devices alone (phones and tablets), and more than $400 billion on Software. There will be as many losers, as winners, in the next 12 months ahead.”

More on the IDC

Tablet growth wanes

South Africa out of favour in 2014

South Africa’s IT landscape

Over 1 billion smartphones sold in 2013

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What emerging market woes mean for IT