The Downshifting Of IT Spending Growth Continues Apace

April 19, 2023 Timothy Prickett Morgan

The central banks of the world don’t have a lot of levers to pull to change the behavior of the national and regional economies that they control. But when they raise interest rates, there is a predictable triple-whammy impact on the economy. Companies start cutting costs, including people, and those who don’t lose their jobs curtail spending just in case they might or in case the economy will slow, and the cost of borrowing money goes up and that dampens demand for big ticket items like houses and cars, which feeds back into the economy.

And thus, it is no surprise that for the fifth consecutive month, the economists and market researchers at IDC have put their heads together and lowered their forecast for IT spending in 2023.

Back in October 2022, IDC reckoned that the global market for IT hardware, software, and services would rise by 6 percent in 2023 when gauged in U.S. dollars, up 5.2 percent in constant currencies where countries don’t use the US dollar. That growth rate in worldwide IT spending is now down to 4.4 percent growth in the April 2023 forecast for this year, with sales of IT products rising to $3.25 trillion. This figure includes spending on PCs, which have been plummeting, but now IDC is figuring that companies are going to cut back on server spending, too. As well as on wearables and peripherals.

Interestingly, for the first time the IDC Worldwide Black Book is carving out direct spending by customers with IT suppliers from indirect spending by customers with channel partners that are downstream from IT suppliers. The direct spending is still forecast to grow by 6.4 percent this year, but sales by channel partners is only predicted to grow by 2.5 percent thanks to the tightening credit that more adversely affects small and medium businesses and therefore IT channel partners.

“Resellers that still derive much of their revenue from on-premise infrastructure and PCs are facing difficult market conditions this year,” Stephen Minton, vice president of the data and analytics research group at IDC, explained in a statement accompanying the numbers. “Meanwhile, cloud infrastructure, software, and services are growing more slowly than a year ago but continue to account for a larger share of total IT spending and are reinforcing the general sense of resilience which the industry still enjoys.”

It is important to realize that growth is still growth, and that this is nothing like the Dot Com Bust in 2001 or the Great Recession of 2008 and 2009, where server and storage spending utterly collapsed – falling in the 25 percent to 25 percent range each quarter for several quarters. This was gut wrenching. This is more like a bad case of butterflies – and hopefully, that is all it turns out to be.

The bright spot in all of this, so far, is spending on IT and business services, which IDC reckons will grow by 5.7 percent from $1.13 trillion in 2022 (in constant dollars) to $1.2 trillion in 2023, which is under the same updated forecast. Due to exchange rates, when expressed in U.S. dollars, the growth will only be 3.5 percent. The U.S. still dominates this part of the market, as you can see:

The growth in the Asia/Pacific-Japan market for IT and business services has been buoyed considerably by a rebound in spending in China after COVID lockdowns late last year. The previous forecast was for growth in the range of 6.5 percent to 7 percent for 2023, and now it has been raised to 8.5 percent for this year.

“The expected slowdown in 2023 and 2024 can be felt in the recent cooling in hiring in global delivery hubs, such as India,” said Xiao-Fei Zhang, program director for the Worldwide Services Tracker at IDC, said in a statement accompanying the services figures. “Vendors’ reported attrition rates are also trending down. But the slowdown in demand will be more measured, and as we project certain markets may recover in 2025, a major talent crunch may return. The digital skill gap is structural and demographic. Vendors should remain laser focused on talent management and re-skilling during the market slowdown.”

And IT shops, too, while we are thinking of it.

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