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Global IT Spending to Fall in 2016 But Recover in '17: Gartner
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It seems that worldwide IT spending is likely to witness second consecutive year of decline, as predicted by Gartner Inc. (IT - Free Report) . The firm forecasts that global IT spending will fall slightly this year compared to IT spending levels in 2015.
The information technology research and advisory firm revealed its predictions in its week long Gartner Symposium/ITxpo event, where Gartner analysts discussed the IT and business issues that contributed to the evolution of the digital business.
Brexit: The Culprit
Gartner estimates IT spending to decline 0.3% year over year to $3.39 trillion from $3.41 trillion in 2015. This is the third time this year that the firm has lowered its global IT spending forecast for 2016. Gartner had earlier forecast spending of $3.54 trillion and $3.41 trillion in the last two reports, on Jan 18 and Jul 7, respectively.
The research firm cited the United Kingdom’s vote to exit from the European Union (EU) as the main reason behind the recent forecast cut. John-David Lovelock, research vice president at Gartner said “The immediate impact of Brexit has caused modest growth in IT spending to turn negative for 2016”. He further added “The immediate impact of the British pound will also cause the IT spending patterns to shift as prices for IT will increase.”
According to the firm, IT spending will increase 0.2% excluding the U.K. Per Gartner, as Britain has voted in favor of the exit from EU, companies will have to change their IT investment plans accordingly, which will negatively impact overall IT spending.
As per Gartner, “Companies will be monitoring negotiations closely, and there will be some changes in IT investment. For example, in financial services, analysts expect to see some countries in Europe put more investment in IT to offer a more viable option for EU countries than the U.K.”
Better Prospects in 2017
The tech companies will certainly not be happy with the recent outlook cut, but Gartner’s global IT spending outlook for 2017 will certainly please them. The research firm projects spending to reach $3.49 trillion next year, representing an increase of 2.9% from $3.39 trillion in 2016. Notably, 2017 spending will also be higher than the 2015 level of $3.41 trillion.
The robust growth is anticipated to be mainly driven by an increase in Software and IT Services spending. Gartner predicts Software spending to increase 6% year over year to $333 billion in 2016 and to grow another 7.2% in 2017 to reach $357 billion.
Similarly, IT Services spending will witness year-over-year growth of 3.9% in 2016 to reach $900 billion. On top of that, the industry will see a 4.8% rise in 2017 spending to total $943 billion.
Software and IT Services segments in Germany and France have witnessed an increase in spending, while in the U.K. it remains the same, as per Gartner. The Netherlands, Luxembourg and Ireland are also increasing their IT spending “to contend as a viable alternative to banks in the U.K.”, Lovelock said. He further added, “We are seeing examples of many banks in talks with these countries to examine the possibility of moving their operations outside of the U.K."
In the U.S., the firm does not see any impact on IT spending due to the pending presidential elections that will take place on Nov 8. It also sees no effect on IT spending trends irrespective of who wins.
Additionally, other remaining segments, i.e. Data Center Systems, Devices and Communications Services will witness year-over-year growth of 2%, 0.4% and 1.9%, respectively in 2017. However, spending across Devices and Communications Services segments will decline 7.5% and 1.1%, respectively, in 2016, while Data Center Systems segment’s spending will increase 1.3%.
Bottom Line
Over the last one and a half years, worldwide IT spending has been hit hard by the strengthening of the U.S. dollar against major currencies. Apart from this, many organizations may have tightened their belts due to macroeconomic uncertainty in various geographies and sluggish growth in China and other emerging economies, in our opinion.
Although, overall spending will remain below the 2014 level of $3.8 trillion, looking at forecasts provided by Gartner, we believe that 2017 will mark a recovery in worldwide IT spending led by Software and IT Services segments.
So, it will be prudent to shift your focus to Software and IT Services stocks that still hold promise. Stocks like Infoblox Inc. , Synopsys Inc. (SNPS - Free Report) , Barracuda Networks Inc. and Inovalon Holdings, Inc. (INOV - Free Report) − are backed by a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buy"" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 ""Strong Sells"" and other private research. See the stocks free >>
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Global IT Spending to Fall in 2016 But Recover in '17: Gartner
It seems that worldwide IT spending is likely to witness second consecutive year of decline, as predicted by Gartner Inc. (IT - Free Report) . The firm forecasts that global IT spending will fall slightly this year compared to IT spending levels in 2015.
The information technology research and advisory firm revealed its predictions in its week long Gartner Symposium/ITxpo event, where Gartner analysts discussed the IT and business issues that contributed to the evolution of the digital business.
Brexit: The Culprit
Gartner estimates IT spending to decline 0.3% year over year to $3.39 trillion from $3.41 trillion in 2015. This is the third time this year that the firm has lowered its global IT spending forecast for 2016. Gartner had earlier forecast spending of $3.54 trillion and $3.41 trillion in the last two reports, on Jan 18 and Jul 7, respectively.
The research firm cited the United Kingdom’s vote to exit from the European Union (EU) as the main reason behind the recent forecast cut. John-David Lovelock, research vice president at Gartner said “The immediate impact of Brexit has caused modest growth in IT spending to turn negative for 2016”. He further added “The immediate impact of the British pound will also cause the IT spending patterns to shift as prices for IT will increase.”
According to the firm, IT spending will increase 0.2% excluding the U.K. Per Gartner, as Britain has voted in favor of the exit from EU, companies will have to change their IT investment plans accordingly, which will negatively impact overall IT spending.
As per Gartner, “Companies will be monitoring negotiations closely, and there will be some changes in IT investment. For example, in financial services, analysts expect to see some countries in Europe put more investment in IT to offer a more viable option for EU countries than the U.K.”
Better Prospects in 2017
The tech companies will certainly not be happy with the recent outlook cut, but Gartner’s global IT spending outlook for 2017 will certainly please them. The research firm projects spending to reach $3.49 trillion next year, representing an increase of 2.9% from $3.39 trillion in 2016. Notably, 2017 spending will also be higher than the 2015 level of $3.41 trillion.
The robust growth is anticipated to be mainly driven by an increase in Software and IT Services spending. Gartner predicts Software spending to increase 6% year over year to $333 billion in 2016 and to grow another 7.2% in 2017 to reach $357 billion.
Similarly, IT Services spending will witness year-over-year growth of 3.9% in 2016 to reach $900 billion. On top of that, the industry will see a 4.8% rise in 2017 spending to total $943 billion.
Software and IT Services segments in Germany and France have witnessed an increase in spending, while in the U.K. it remains the same, as per Gartner. The Netherlands, Luxembourg and Ireland are also increasing their IT spending “to contend as a viable alternative to banks in the U.K.”, Lovelock said. He further added, “We are seeing examples of many banks in talks with these countries to examine the possibility of moving their operations outside of the U.K."
In the U.S., the firm does not see any impact on IT spending due to the pending presidential elections that will take place on Nov 8. It also sees no effect on IT spending trends irrespective of who wins.
Additionally, other remaining segments, i.e. Data Center Systems, Devices and Communications Services will witness year-over-year growth of 2%, 0.4% and 1.9%, respectively in 2017. However, spending across Devices and Communications Services segments will decline 7.5% and 1.1%, respectively, in 2016, while Data Center Systems segment’s spending will increase 1.3%.
Bottom Line
Over the last one and a half years, worldwide IT spending has been hit hard by the strengthening of the U.S. dollar against major currencies. Apart from this, many organizations may have tightened their belts due to macroeconomic uncertainty in various geographies and sluggish growth in China and other emerging economies, in our opinion.
Although, overall spending will remain below the 2014 level of $3.8 trillion, looking at forecasts provided by Gartner, we believe that 2017 will mark a recovery in worldwide IT spending led by Software and IT Services segments.
So, it will be prudent to shift your focus to Software and IT Services stocks that still hold promise. Stocks like Infoblox Inc. , Synopsys Inc. (SNPS - Free Report) , Barracuda Networks Inc. and Inovalon Holdings, Inc. (INOV - Free Report) − are backed by a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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You are welcome to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buy"" stocks free of charge. There is no better place to start your own stock search. Plus you can access the full list of must-avoid Zacks Rank #5 ""Strong Sells"" and other private research. See the stocks free >>