Global IT Market Rebounding Strongly, but Cloud Lingers Over Europe

Worldwide IT spending is set to increase by 3.8 percent this year, 5.5 percent in 2011, according to latest IDC Worldwide Black Book forecast

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Framingham, MA — June 3, 2010 — Worldwide IT spending has rebounded strongly from the Great Recession, as many businesses take advantage of the general economic recovery to catch up with overdue spending on critical hardware infrastructure, according to market data from research firm International Data Corporation.

IDC data show capital spending on PCs, servers, storage and network equipment soaring in recent quarters, producing strong year-over-year growth comparisons with the lowest period of the recession. Meanwhile, consumer spending on smartphones has continued to accelerate.

According to a new forecast from IDC, worldwide IT spending is set to increase by 3.8 percent this year at constant currency, to $1.47 trillion. Hardware will lead the way, with growth of 6.4 percent at constant currency, while software and services spending will increase by 3.1 percent and 1.5 percent respectively. Based on exchange rates from the first quarter of 2010, growth in U.S. dollars this year would be higher at 5.6 percent. This follows the decline in worldwide IT spending of 4.2 percent in constant currency last year (a decline of 7.3 percent in U.S. dollars).

In 2011, worldwide IT spending is forecast to accelerate, growing by 5.5 percent, assuming a gradual recovery in Europe and Japan.

Pent-up Demand

In emerging markets like China and India, businesses and consumers are once again rushing to invest in new technology products and services to support their export-driven growth. In the U.S., government stimulus funding has provided a much-needed boost, which has trickled through to strong shipments of IT equipment. Additionally, U.S.-based IT firms received a boost from currency fluctuation in the first quarter of 2010, adding to the general sense of optimism which has accompanied recent earnings announcements.

"IT spending growth in the U.S. and emerging markets has been strong during the past two quarters," said Stephen Minton, vice president of worldwide IT markets and strategies at IDC. "Some of this is down to easy comparisons with the same period a year ago, but it also reflects very real pent-up demand for infrastructure spending, including investment in solutions such as virtualization and information management. Just as capital spending on hardware is the first thing to fall in a recession, it's also the first thing to come back up for air when IT budgets are surfacing above water."

Minton added that there is still some caution in the marketplace. "Some businesses are wary about the sustainability of the economic recovery and are holding off on some project-based spending and large, multi-year contracts," he said. "There is undoubted relief that capital spending and general IT budgets are up, but it's also clear that some weak spots persist."

Weakness in Europe

One of those weak spots is Western Europe, where the current debt crisis in Greece has raised concern over the short-term prospects for the European Union. Even before that crisis reached its recent levels of alarm, the European economy and IT market were recovering sluggishly.

IT spending in Western Europe is expected to be flat this year in constant currency, after plunging by 6.5 percent in 2009 (a decline of 13.5 percent in U.S. dollars). Representing almost a third of global IT spending, Western Europe is a hugely important market for technology vendors, and any further strains on the confidence of European businesses and consumers could cast a cloud over the outlook for the second half of this year.

"Risky markets will remain volatile, despite the forestalled paralysis of the interbank lending market," said Anna Toncheva, program manager and economist in IDC's IT Markets and Strategies team. "There will be a period of intense exchange rate volatility as capital takes flight away from Europe into the U.S. bond market and depresses the euro. China will be less motivated to de-peg from the dollar and revalue the yuan. Production and supply chain decisions will be impacted by these developments."

Another weak spot for the global IT market is Japan, where the recovery in exports has not yet driven an increase in domestic consumption or investment. IT spending in Japan is expected to decline by 2.2 percent this year in constant currency, after the plunge of 11.1 percent recorded in 2009. Growth prospects elsewhere in Asia, though, are brighter; the IT market will increase by 13.7 percent in China, and by 13.8 percent in India, according to IDC.

IDC's Worldwide Black Book provides new and updated forecasts for IT spending in 54 countries around the world. IT spending forecasts for the period 2006–2014 focus on 22 individual market segments across hardware, software, IT services and telecom services for individual countries in North America, Latin America, Western Europe, Eastern Europe, Asia/Pacific, the Middle East and Africa.