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By | Paul Kunert 9th April 2015 10:43

Gartner forecast dartboard falls off wall, lands in pile of crumpled dollars

Large currency swings see tech spending estimates fall

The mystics at Gartner have changed their mind: the value of the IT spending isn’t going to grow this year after all, and it is all the fault of the pesky tea leaves US dollar.

The re-forecast indicates global expenditure will shrink 1.3 per cent on 2014 to $3.66tn, which is way off last year’s prediction of 3.9 per cent growth, later revised to a more modest rise of 2.4 per cent in January.

“This is not a crash, even if it looks like one,” said John-David Lovelock, research veep, as the “rapid rise in the value of the US dollar against most currencies has put a currency shock in the global IT market."

The US currency is up 15 per cent against Good Old Sterling for example, and last month the Euro traded at €1 to $1.07, a level not seen since 2003.

Removing the currency effect reveals a different story Lovelock said: the market would be growing closer to 3.1 per cent.

“Such are the illusions that large swings in the value of the dollar versus other currencies can create,” he said.

Every product with a US dollar-based component must have costs covered at the lower exchange rate, the Garnter man added, and “the simple implication is that there will be price rises”.

“However, there are many other market forces at work — protecting US dollar profits will require a nuanced and multifaceted approach involving pricing, partners and product management.”

Brit businesses have already seen a price hike of on average of six per cent in late January to counter the forex challenge. If vendors keep tweaking their prices presumably we can expect another re-forecast from Gartner.

As it stands, the beanie reckons nearly all markets will decline in dollar spending terms this year, and only enterprise software and data centre systems are touted to grow, 2.3 and 0.4 per cent respectively to $320bn and $142bn.

However, Gartner said the enterprise spending forecast had been lowered because of a “substantial reduction in the forecast for office suite spending” as more people sign up to cloud services.

“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-premise model," he said.

Customer spending on devices — for that read PCs, ultra mobiles, mobile phones, tab and printers — is expected to drop 1.2 per cent year-on-year to $685bn, but this is partly due to a general slowdown in demand for clients.

The cash haul from IT services is forecast to drop 0.7 per cent on 2014 levels to $942bn with implementation services bearing the brunt, with the oil and gas sectors expected to cut back on spending, perhaps by as much as a fifth. BP has already started to seek ways to cut costs, as we revealed.

The largest sector of the industry, telecom services, is to drop 2.4 per cent to $1.61tn, according to Gartner, with the dollar and reductions in total connections for mature markets fingered.

With two re-forecasts under its belt just a quarter into the year, Gartner will likely be making further updates to its estimates. ®

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