Gartner Shaves IT Spending Projections For 2014 Again

July 7, 2014 Timothy Prickett Morgan

Every year starts out anew with its own optimism and then the reality of the year gradually becomes apparent. It may seem like it has been a long time since a year of spending in the IT sector started out strong and got stronger as the year progressed, but it has happened, in 2010 as the world started to come out of the Great Recession. But in recent years, as in lingering recessions of years gone past and during major transitions in the IT sector itself, it does seem like forecasts of IT spending growth get cut as the year progresses.

It would be tempting to say that pessimism breeds a slowdown and optimism breeds faster growth, but it is probably not that simple. There are so many feedback loops in an economy it is hard to separate cause and effect. All we can do is reconcile our own IT budgets to the realities of our business and compare that against what our peers are doing and what the larger IT sector seems to be doing. If we are lucky, we do better than the averages.

Last week, the forecasters at Gartner took a look at their projections of IT spending for 2014 and revised them downward, citing a number of different factors. Notably, spending on storage and servers is not expected to be as vigorous as Gartner had once hoped, and similarly spending on IT services is not going to be as rambunctious, either. The good news is that there is growth, which is always better than the alternative. And Gartner is–wait for it–forecasting that growth rates will return to something akin to normal in the years ahead. We just have to get through this transitional patch is all.

“Price pressure based on increased competition, lack of product differentiation, and the increased availability of viable alternative solutions has had a dampening effect on the short term IT spending outlook,” explains Richard Gordon, the managing vice president at Gartner who heads up the IT spending forecast team. “However, 2015 through 2018 will see a return to ‘normal’ spending growth levels as pricing and purchasing styles reach a new equilibrium. IT is entering its third phase of development, moving from a focus on technology and processes in the past to a focus in the future on new business models enabled by digitalization.”

I don’t know if I believe that.

While IT shops and their vendors have produced radically better price/performance and higher usage efficiencies from their wares, hard and soft, in the past two and a half decades that I have been watching, it strikes me that even more efficiencies are going to be squeezed from our hardware and software in the coming years. This includes both on premise and offsite cloud computing and storage, and there will be a relentless adoption of new application development techniques and computing styles that will drive both efficiency and flexibility. Some companies will build these modern applications themselves for their internal use and others will build them to sell capacity for those who do not have these skills. It is a classic old-versus-new conflict, pitting the new style of applications–cheap hardware and sophisticated distributed software that spans many machines to get resiliency–against the established enterprise norm–reasonably sophisticated servers and storage comprising fairly resilient systems and applications that run many to a box in virtual machines.

If I was a betting man, and I am when it comes to this sort of thing because I bet my jobs on it, I would say an increasing number of applications will look more like what Google does and less like what IBM and its partners have been doing for decades. This phase change in IT is no different in concept from that of proprietary minis getting established as an alternative to mainframes in the late 1970s and early 1980s, Unix machines doing the same in the early 1990s, the client/server revolution a few years later when a reasonably cost effective and sophisticated graphical user environment (Windows for X86 PCs) became available, and a few years later when the commercial Internet took off. (To be fair, all of these revolutions were kind of underway in the late 1980s but they did not mainstream at the same rates.) None of these alternative platforms for doing computing completely obliterates their predecessors, but the older technologies do diminish in their breadth of adoption even if they do remain mission critical for many.

There are still mainframes and minis and Unix machines and Windows-based client/server applications running inside of thick clients. But modern applications have a mobile front end adapted to many devices and application frameworks that can support these clients as well. The back-end is increasingly a mix of SQL and NoSQL databases spread across multiple machines for high availability, and is generally a Windows or Linux platform, with some portions running on bare metal for performance reasons and some running in virtualized mode to provide resource control and workload isolation. Watch carefully what Google does and what Facebook, Yahoo, and others imitate. All of the kids who have studied compsci for the past decade have done that.

The slowdown that Gartner is projecting is pretty big to some ways of thinking about it, and small in others. The most recent prognostications from the market researcher had pegged global IT spending growth for 2014 at 3.2 percent, but they have shaved 1.1 points off that growth rate and now say it will only come to 2.1 percent, pushing up total spending to $3.75 billion. That change in growth removed about $41.5 billion out of the global IT economy for the year, and that is not a small amount.

Gartner says that spending on data center systems, which includes servers, storage, networking, and other stuff, will be essentially flat this year, rising only four-tenths of a point to $140 billion. Don’t expect a lot of acceleration here in 2015, either, with Gartner expecting data center hardware sales to only rise by 2.9 percent to $144 billion. Enterprise software, driven by increased spending on infrastructure software (like that mentioned above, including middleware and databases) will rise by 6.9 percent to $321 billion and rise again by 7.3 percent in 2015 to $344 billion. IT services, which is a large portion of IT spending, was flat in 2013 at $932 billion, is now projected to rise by 3.8 percent to $967 billion this year, and rise by 4.1 percent in 2015 to just over $1 trillion. There is a shift underway as application software is now being increasingly bought as a service and not as a software license as we know it.

Devices, which range from PCs to tablets to smartphones, are going to see slower revenue growth as budget models of smartphones and tablets catch on and cheaper devices do the trick for more customers. Gartner reckons that total device spending rose by only 1.1 percent to $677 billion last year and will only rise by 1.2 percent to $685 billion this year. Because the further future always looks brighter, Gartner thinks device revenues will rise by 5.8 percent to $725 billion. But I would wonder if the market will not come up with better and cheaper platforms and quash a lot of that growth. Telecom data and voice services is a huge portion of the IT sector by Gartner’s way of carving it up, but was down 1.2 percent in 2013 to $1.62 trillion. Telecom services are expected to grow by seven-tenths of a point this year to $1.64 trillion and then rise by two points next year to $1.67 trillion.