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Why Digital Transformation Spending is Resilient

Recent news headlines may not instill confidence in the overall Global Networked Economy, but that doesn't discourage spending on Digital Transformation initiatives that are focused on creating new  business models.

IT market performance remained patchy in April, with some vendors experiencing a sharp decline in growth while others continued to benefit from long-term enterprise commitment to digital business.

According to the latest worldwide market study by International Data Corporation (IDC), overall growth this year in constant currency will reach 4.8 percent to $3.27 trillion -- that's a slight improvement, which reflects the continued IT services market performance.

IT Services Market Development

IT services growth this year will be almost 6 percent, as large enterprises remain committed to long-term digital transformation investments despite the recent short-term economic turbulence.

Overall software spending growth will be almost 11 percent, driven mostly by cloud software revenues which will increase by 19 percent.

This marks a slowdown compared to last year’s cloud software growth of 25 percent and growth of public cloud Infrastructure-as-a-Service (IaaS) will also slow compared to last year (from 33 percent in 2022, to 26 percent in 2023).

"Businesses are much more cost-conscious than a year ago, when inflation was adding to strong growth across much of the IT market," said Stephen Minton, vice president at IDC.

Efforts to consolidate and control cloud computing budgets, along with economic uncertainty, mean that IT vendors are having to adjust to a slower pace of growth in the new post-COVID global market.

Nevertheless, according to the IDC assessment, continued double-digit growth in overall cloud computing spending is driving historic levels of resiliency for the information technology industry.

While software and services spending continue to grow, this contrasts with a significant pullback in capital spending on hardware, as lending interest rates have a direct impact on financing, and recent turmoil in the banking sector added to a sense of economic uncertainty.

"Higher interest rates around the world are clearly a headwind for capital spending this year," added Minton. "Governments have reacted quickly to banking sector wild cards, but all of this just adds to expectations that a recession is still just around the corner."

Notably, PC spending will decline by 12 percent this year, while peripheral hardware spending will be down 3 percent. What little growth there is in hardware spending in 2023 is increasingly concentrated in service provider and cloud-related budgets, but this growth will also be weaker than a year ago.

Server or storage spending is forecast to increase by just 2 percent this year -- that's down from 23 percent in 2022. While cloud computing infrastructure will continue to grow, non-cloud server or storage spending will decline by 7 percent this year.

"For IT vendors and resellers which are mostly providing on-premise and traditional hardware or software to their clients, this is shaping up to be a tough year," concluded Minton.

Outlook for Global Technology Market Spending

IDC notes that Small or Medium Business (SMB) and Consumer markets are feeling the impact of higher loan and credit interest rates. However, large enterprise strategic investments in digital business transformation efforts remain somewhat untouched.

Meanwhile, service providers continue to invest in cloud computing infrastructure, and yet other areas of the IT market are experiencing a slowdown as the post-COVID shakeout continues to disrupt inventories, supply chains and customer demand.

That said, I believe this is another one of those times where the most successful IT vendors and service providers will distance themselves from the rest of the marketplace. The value creation derived from distinctive offerings will become paramount, while the bland offerings will merely under-perform.

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