Overall IT Spending Dropping, Device Growth Slowing

Overall IT Spending Dropping, Device Growth Slowing

Just one week after stating worldwide IT spending is expected to drop 5.5 percent this year, research firm Gartner announced that overall device shipments are expected to grow only 1.5 percent, down from the 2.8 percent it originally expected for 2015.

On the surface, the news has gone from bad to worse for the IT industry. Just one week after stating worldwide IT spending is expected to drop 5.5 percent this year, research firm Gartner announced that overall device shipments are expected to grow only 1.5 percent, down from the 2.8 percent it originally expected for 2015.

Gartner said worldwide IT spending will total $3.5 trillion this year, a 5.5 percent drop from $3.7 trillion in 2014. But the research firm is not ringing the alarm bell just yet, as it attributes the decline mainly to the rising U.S. dollar. In fact, the market would have grown 2.5 percent if you compare constant-currency terms, the firm said.

"We want to stress that this is not a market crash. Such are the illusions that large swings in the value of the U.S. dollar vs. other currencies can create," said John-David Lovelock, research vice president at Gartner, in a prepared statement. "However, there are secondary effects to the rising U.S. dollar. Vendors do have to raise prices to protect costs and margins of their products, and enterprises and consumers will have to make new purchase decisions in light of the new prices.”

Breaking down the IT areas, communications services remains the largest area but is also experiencing the most pressure. Communications services spending is expected to reach $1.5 trillion in 2015, far greater than any other segment. However, this would represent a 7.2 percent decline from $1.6 trillion in 2014, according to Gartner. Gartner attributes the sharp decline to price erosion and heightened competition.

The next largest segment is the IT Services area where spending is expected to decrease to $914 billion, down 4.3 percent from $955 billion last year. "IT activity is stronger than the growth in spending indicates. Price declines in major markets like communications and IT services, and switching to 'as a service' delivery, mask the increase in activity," Lovelock said. 

For its part, devices (which for this report includes mobile phones, tablets and PCs) are expected to decline in spending to $654 billion, a 5.7 percent drop from $693 billion in 2014. Although mobile phone spending is still on the rise—especially Apple phones in China—PC and tablet spending are weakening. “Excessive PC inventory levels, especially in Western Europe, need to be cleared, which will delay Windows 10 inventory in the second half of the year,” according to the report.

Following its global IT spending report, Gartner then released data related to worldwide device shipments broken out by PCs, mobiles and ultra-mobiles. Worldwide combined shipments of these devices is only expected to increase 1.5 percent to 2.5 billion this year, from 2.4 billion last year. Originally, the research firm was expecting 2.8 percent growth.

“End user spending on devices will total $606 billion in 2015 and will show, for the first time since 2010, a 5.7 percent decline in current U.S. dollars,” the report noted.

"Our forecast for unit shipment growth for all devices in 2015 has dropped by 1.3 percentage points from last quarter's estimate," said Ranjit Atwal, research director at Gartner, in a prepared statement. "This was partly due to a continued slowdown in PC purchases in Western Europe, Russia and Japan in particular, largely due to price increases resulting from local currency devaluation against the dollar." 

The only bright spot in the market, if you can call it that, is mobile phones, where prices continue to fall. And although it is still growing in terms of units shipped, the growth is slowing.

Specifically, the mobile phone market is expected to grow 3.3 percent in 2015 to 1.94 billion units shipped from 1.87 billion units shipped in 2014, according to Gartner. The research firm is currently projecting 2.0 billion units shipped next year and 2.06 billion units to ship in 2017.

“The global market has been affected by a weaker performance in China. We have witnessed fewer and fewer first time buyers in China, a sign that the mobile phone market in there is reaching saturation. Vendors in China will have to win replacement buyers and improve the appeal of their premium offerings to attract upgrades, if they want to maintain or increase their market share," said Annette Zimmerman, research director at Gartner, in a statement. "Vendors looking to grow their performance in the global smartphone market will be challenged to quickly enhance their expansion into emerging markets outside of China, where we still witness a sizeable share of feature phones and an opportunity for double-digit smartphone growth."

To no one’s surprise the PC shipment market is expected to decline 4.5 percent this year tol 300 million units. "We do not expect the global PC market to recover until 2016. The release of Windows 10 on July 29 will contribute to a slowing professional demand for mobile PCs and premium ultramobiles in 2015, as lifetimes extend by three months. However, as suppliers and buyers adjust to new prices, Windows 10 could boost replacements during 2016,” Atwal said.

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