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Communication Services Dominate Global IT Spending

Most enterprise CIOs and other information technology (IT) executives have the support of their organization's forward-looking board of directors. However, given the current global economy, IT cost optimization is a hot topic at executive briefings about the CFO's budget allocations.

Worldwide IT spending is forecast to total $3.8 trillion in 2021 -- that's an increase of 4 percent over 2020. Meanwhile, IT spending during 2020 is now expected to total $3.6 trillion -- that's down 5.4 percent from 2019 levels, according to the latest market study by Gartner.

"In the 25 years that Gartner has been forecasting IT spending, never has there been a market with this much volatility," said John-David Lovelock, vice president at Gartner. "While there have been unique stressors imposed on all industries as the ongoing pandemic unfolds, the enterprises that were already more digital going into the crisis are doing better and will continue to thrive going into 2021."

Digital Transformation Market Development

On the upside, enterprise software is expected to have the strongest rebound in 2021 (7.2 percent) due to the acceleration of digitalization efforts by enterprises supporting a remote workforce, delivering virtual services such as distance learning or telehealth, and leveraging hyper-automation to ensure pandemic-driven demands are met.

Spending on data center systems will experience the second-highest growth of 5.2 percent in 2021 as cloud computing hyperscalers accelerate global data center build-out and other organizations resume data center expansion plans and allow staff to be physically back onsite.

Despite the increase in cloud services activity in 2020 as organizations shifted to a remote-work-first environment, enterprise cloud computing spending -- which falls into multiple categories -- will not be reflected in IT vendor revenue until 2021.

"The spending slowdown that took place from roughly April through August of this year, coupled with cloud service provider's 'try before you buy' programs, is shifting cloud revenue out of 2020," said Mr. Lovelock.

According to the Gartner assessment, public cloud services had a proof point this year -- it worked throughout the pandemic, it scaled up and it scaled down. This proof point will allow for an accelerated penetration of cloud computing through 2022.

"With revenue uncertainty promoting cash from being King to being Emperor, CIOs are now prioritizing IT projects where the time to value is lowest," said Mr. Lovelock.

Companies have more IT to do and less money to do it, so they are pulling money out of the areas they can afford, such as mobile phone and printer refreshes, which is why there will be less growth in the devices and communication services segments.

Instead, CIOs that are able to realign IT budgets are spending more in areas that will accelerate their digital business transformation, such as public cloud Infrastructure-as-a-Service (IaaS) or customer relationship management (CRM) software.

Outlook for Global IT Cost Optimization
 
Moving forward, Gartner analysts say digital transformation will not be subject to the same ROI justification it was pre-pandemic, as the mandate for some IT organizations becomes business survival, rather than digital growth.

That said, communication services still dominate global enterprise IT spending (estimated at $1,332,795 million in total for 2020). Most multinational companies are under contract for legacy wide-area network services that consume the majority of their monthly expense for telecommunication links.

In the coming months, I believe that more CIOs and CTOs will assess the alternatives to aging MPLS network offerings, and seek proven ways to re-architect their WAN in the quest for lower-cost and improved performance for end-users.

Furthermore, typical savings gained from SD-WAN adoption has significantly benefited numerous organizations across the globe. These IT budget savings have been re-invested in much needed digital transformation projects. Under this scenario, a CEO's bold digital growth goals can be fully realized.

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