Technology | Media | Telecommunications

Tuesday, February 23, 2016

The $3.8 Trillion ICT Market Development Opportunity

When we look back on 2016, it will likely be remembered as a year of transition for many business technology vendors -- particularly those that were unable to react quickly to the pervasive enterprise IT buyer trends in the marketplace. Meanwhile, there's always an upside for those who have foresight.

Worldwide IT spending is expected to post a slowdown in 2016. Having achieved annual growth of 5-6 percent (in constant currency) since a recovery from the financial crisis in 2010, the global IT market is expected to increase by just 2 percent overall this year.

Total IT spending on hardware, software and services will reach $2.3 trillion in 2016. Including telecom services, total information and communication technology (ICT) spending will increase by 2 percent to $3.8 trillion, according to the latest worldwide study by International Data Corporation (IDC).

Exploring the Key Performance Indicators

IT spending was relatively stable in 2015, in spite of the volatile global economy, propelled by another strong year for smartphone shipments, which compensated for a weakening PC market throughout the year.

Smartphones accounted for half of the overall industry growth rate of 6 percent in 2015. Spending on cloud computing infrastructure was also robust throughout the year, resulting in growth of 16 percent for the server market and 10 percent for storage systems.

Enterprise spending on software, including SaaS, posted growth of 7 percent with investment in analytics, security, and collaborative applications. However, in U.S. dollar terms, the overall IT market declined by 2 percent last year, and exchange rate volatility remains an unknown which could influence the financial performance of IT suppliers during this year.

"Aside from exchange rate volatility, IT spending has been relatively stable for the past five years," said Stephen Minton, vice president at IDC. "Excluding mobile phones, overall tech spending has continued to grow at 3-4 percent each year in constant currency terms since we recovered from the disruption of the financial crisis."

Exploring the Pockets of New IT Growth

IT buyers continue to prioritize software investments, such as data analytics and enterprise mobility, and have utilized the managed service provider model in order to increase the effectiveness of their IT budgets. According to the IDC assessment, the enterprise buyer sentiment remains positive.

The U.S. IT market is forecast to increase by 4 percent for the fourth consecutive year, in spite of an expected decline in the PC market and weakening growth in servers and storage. Moreover, U.S. companies continue to invest in Big Data, Cloud, Mobile and Social Business technologies. IDC predicts 4 percent annual growth in IT spending will continue in 2017.

Western Europe will post weaker growth in 2016, due to the increased maturity of the smartphone market and a deceleration from the double-digit growth of spending on infrastructure last year. Cloud-related investments remained strong over the past 12 months, in spite of inflationary pressures related to currency devaluation, but there are signs that future momentum is somewhat unpredictable.

However, growth in IT services and software is expected to remain stable, and IDC analysts also forecast an improvement in the media tablet market after a weak performance last year. Including smartphones, overall IT spending in Europe will increase by just 1 percent this year -- that's down from 5 percent growth in 2015.

The Asia-Pacific region will post growth of less than 2 percent in 2016 -- that's compared to 7 percent in 2015 -- largely due to the overall slowdown in China. The IT market in Japan is expected to stabilize, recovering to growth of 1.5 percent after posting a slight decline in 2015.

India remains a bright spot, posting growth of 13 percent last year. While a slowdown in PC revenues and cloud infrastructure spending will result in overall IT spending growth of 8 percent in 2016, underlying sentiment is still strong. India will rebound to double-digit growth in 2017, and will represent a source of new growth for global IT suppliers over the next five years.

Growth in other emerging markets will be volatile. A major slowdown in Russia in 2015 resulted in an IT spending decline of 8.5 percent, and the recovery will be gradual in 2016 -- with growth of just 1 percent. The IT market in Brazil is also expected to be sluggish, forecast to increase by just 3 percent this year.

Excluding smartphones, IT spending in Brazil will post a slight decline, with significant declines in PC and server spending. Overall IT spending in Brazil, Russia, India and China will increase by just 1 percent in 2016. Regardless, the vast $3.8 trillion worldwide ICT market development opportunity still includes the potential for significant market share gains by the most savvy leading vendors.