Coronavirus flushes IT spending to a 2.7% decline: IDC

Coronavirus flushes IT spending to a 2.7% decline: IDC

As the coronavirus pandemic becomes more entrenched across the globe, IT companies are slashing their spending and tuning up their contingency plans. According to revised research by International Data Corporation (IDC), worldwide IT spending is now expected to decline by 2.7%.RELATED: Coronavirus: The dawning of a new IT spending era

In early March, IDC said IT spending could grow by 1% by the end of 2020 compared to its original forecast of more than 4% growth back in January. Currently, overall spending on hardware, software and IT services is “likely” to decline by more than the real GDP overall, according to IDC.

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Public companies have been revising their earnings guidance over the past month or so due to the impact of the coronavirus. IDC said that commercial IT buyers and consumers are in the process of making rapid cuts to their capital spending in line with declining revenues, profits, market valuations and, employee headcounts.

“Overall IT spending will decline in 2020, despite increased demand and usage for some technologies and services by individual companies and consumers,” said Stephen Minton, program vice president in IDC’s customer insights and analysis group, in a statement. “Businesses in sectors of the economy that are hardest hit during the first half of the year will react by delaying some purchases and projects, and the lack of visibility related to medical factors will ensure that many organizations take an extremely cautious approach when it comes to budget contingency planning in the near term.”

Including telecom and other spending, total ICT spending will decrease by 1.6% to just under $4.1 trillion compared to overall ICT growth of 3.5% last year, when IT spending increased by almost 5%. Telecom spending will be less impacted overall, according to IDC. While the coronavirus is having a negative impact on IT spending, service providers are in relatively good shape as more work from home employees and home-based students rely on their broadband networks.

RELATED: IDC: IT spending will grow in 2020, but coronavirus causes uncertainty

Prior to the coronavirus outbreak, worldwide IT spending was originally forecast to grow by just over 5% in constant currency this year mainly due to strong PC sales in the fourth quarter of 2019 giving way to a smartphone upgrade cycle driven by 5G deployments and a recovery for service provider spending on infrastructure. In addition, continued momentum around digital transformation projects was expected to fuel strong demand for software and IT services in 2020.

IDC now projects major spending declines in PCs, tablets, mobile phones and peripherals, with overall device spending expected to drop by 8.8% in constant currency terms. The coronavirus pandemic will significantly disrupt the smartphone market that was previously expected to have a strong year due to the increased roll out of 5G services.

Spending on server/storage and network hardware will also dip even though most of the hyperscale cloud providers have indicated they will spend more this year after some of them cut their capex in 2019. While there’s still demand for cloud services, such as software-as-a-service (SaaS), enterprises are keeping their wallets closed during the initial response phase of the COVID-19 outbreak.

Including cloud, total infrastructure spending will increase by 5.3%, but IDC said all of that growth would come from enterprise spending on infrastructure as a service (IaaS) and cloud provider spending on servers. Overall server/storage hardware spending will be down by 3.3% and enterprise network equipment spending will drop by 1.7%.

“Hardware spending in general is always identified for rapid spending cuts during any economic crisis, as a means for enterprises to quickly protect short-term profitability,” said Minton. “In previous economic crashes, IT hardware has tended to overshoot the economic cycle on both the downside and in the recovery phase. That’s because underlying demand drivers don’t change overnight, but the timing of purchases is shifted and delayed, and this can now be done even more quickly than in the past.

“What’s different now is that cloud is a bigger factor than it was in any previous global recession, and this should mean that overall spending is less volatile than in the last two major IT spending downturns.”

Mainly due to those cloud investments, software is projected to grow at just under 2% overall, which includes demand for software in specific categories.

“There will be pockets of opportunity for software and related services during the next six months, as organizations create response measures focused around increased remote work and collaboration,” said Minton. “Organizations that are further along the digital transformation and cloud migration scales are likely to be best-positioned in terms of integrating these technologies into effective and agile response plans.”

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