Is IT Spending Finally Hitting a Wall? Not So Fast, Chicken Little

Can the great IT spending boom finally reached its peak? Are customers—business and personal—finally going to slow down their technology adoption? Is the sky really falling?

Well, according to the latest Gartner report, worldwide IT spending is expected to decline 1.3 percent this year. That’s right, decline. The research giant is forecasting that worldwide IT spending will drop to $3.66 trillion from $3.71 trillion in 2014.

Who are the culprits? Spending on devices is expected to drop 1.2 percent to $685 billion this year from $693 billion last year; IT services is expected to drop .7 percent to $942 billion from $948 billion; and telecom services is expected to fall a whopping 2.6 percent to 1.57 trillion in 2015 from $1.61 trillion in 2014, according to Gartner.

So should service providers panic? The answer is a resounding “no.”

The main reason for the worldwide spending decline has less to do with the demand for products and services and more to do with the value of the U.S. dollar.

"We forecast U.S.-dollar-valued worldwide IT spending in 2015 to shrink by 1.3 percent, down from 2.4 percent growth forecast in last quarter's update," said John-David Lovelock, research vice president at Gartner, in a prepared statement. "However, this is not a crash, even if it looks like one. The recent rapid rise in the value of the U.S. dollar against most currencies has put a currency shock into the global IT market.”

In fact, if it weren’t for the rapid rise in the U.S. dollar, worldwide IT spending would certainly be up.

“Taking out the impact of exchange rate movements, the corresponding constant-currency growth figure is 3.1 percent, only off 0.6 percent from last quarter's update. Such are the illusions that large swings in the value of the dollar vs. other currencies can create,” Lovelock said. "However, this illusion masks a bigger issue that has real implications. Every product or service that has a U.S. dollar-based component must have those costs covered at the lower exchange rate. The simple implication is that there will be price rises. However, there are many other market forces at work—protecting U.S. dollar profits will require a nuanced and multifaceted approach involving pricing, partners and product management," he added. 

Further, even though data center systems spending are expected to inch up slightly to $142 billion and enterprise software is expected to rise 2.3 percent from $313 billion to $320 billion, these figures were taken down by Gartner due forces outside the U.S. dollar value.

“The server segment has seen the biggest impact due to the greater pricing pressure that server vendors are exposed to, due to their relatively lower margins,” according to Gartner.

Meanwhile, enterprise spending may still be in the positive Gartner has revised its expectations downward from its latest forecast “reflecting the acceleration of Office 365 adoption. Office 365 is disrupting traditional revenue flows. Its cost is prorated over the life of the subscription, resulting in significantly lower revenue growth as users transition away from the on-premises model,” Gartner said.

But solution providers should not fear. Technology will continue to move forward and so will spending, specifically in mobile, cloud and security services. The headlines may scream the sky is falling but those in the trenches know there is plenty of opportunity.

Knock 'em alive!