Cloud, ‘new’ technologies fueling IT growth: IDC

While the cloud craze continues, global IT budgets will also focus on newer technologies such as robotics, virtual reality and cognitive AI, according to the research firm’s 2018 IT spending predictions. The big question mark, however, is U.S. tax reform legislation.

It already seems like every headline is about Donald Trump, and now the U.S. president has even shown up in IDC’s global forecast for IT spending. The Trump administration’s recent revisions to the U.S. tax system loom large in IDC’s outlook for 2018 tech budgets.

“The biggest change is the tax reform legislation passed in the United States,” said Stephen Minton, VP of customer insights and analysis at IDC. “It’s pretty complex in terms of the different scenarios, in terms of the impact on businesses and how they choose to spend as a result of lower tax bills in 2018.”

Translation: it’s complicated.

As Minton elaborated during IDC’s 2018 spending predictions webcast, sweeping corporate tax cuts could have downsides as well as upsides for IT spending.

Potential upside: lower taxes are likely to boost U.S. corporate profitability, which encourages companies to spend more on IT. Possible downside: adding tax cuts to a U.S. job market that’s already going strong could spark inflation and overheat the American economy.

“As we saw with the recent stock market crash, people are beginning to think about interest rates going up and that could start to drag on growth when we get to 2020,” Minton said. “We’re not looking at a major crash in the U.S. economy in 2020, but there could be a short slowdown followed by a recovery.”

Trump’s more protectionist trade stance could also weigh on IT budgets, Minton cautioned. If Trump’s government introduces new tariffs and barriers to trade, “that would be the wildcard. That would probably become a headwind which would start to work against some of the positives in the U.S. economy,” Minton said.

So although U.S. IT budgets could receive a nice bump up from tax cuts in the next two years, they could be dampened by rate hikes and tariffs.

The big picture

Widening out the picture beyond America, Minton said all major world economies will see positive growth in IT spending this year, but at a slower rate than in 2017. ICT spending in the U.S. will increase by about two per cent in 2018, down from about four per cent last year. Tech budgets in Canada will similarly grow at 1.5 per cent this year, down from four per cent in 2017.

Why the slowdown? There was a lot of pent-up demand for IT in 2017, Minton noted, and after going shopping to fill that demand, enterprises will hold back a little in 2018.

Looking further ahead, Minton predicted global tech spending will take “a bit of a dip in 2019 due to a dip in smartphones and also (because) some economies may be growing a little more slowly then,” particularly emerging markets like Russia, India, China and Brazil.

What we’ll purchase

Which IT items will enterprises spend their money on this year? Not tablets, which will continue their sales decline, according to IDC. Smartphone sales will soften this year but enjoy an uptick in 2020 thanks to 5G.

When it comes to capital spending, Minton’s forecast sees seven out of nine IT categories (PCs, tablets, smartphones, server/storage, software, IT services and telecom) declining or staying flat. Only two capex categories — network technology and business services — will likely post spending increases.

In the U.S., spending on IT infrastructure will grow by a sizeable eight per cent in 2018, driven mainly by the fact “there are no constraints on demand for cloud infrastructure,” Minton said. The flipside of the continued cloud craze is that from now until 2021, “cloud cannibalizes traditional IT services,” he added, putting pressure on traditional vendors “to expand their footprint in order to benefit from much of the next wave.”

Shiny new stuff

Global enterprise spending on what Minton called “new” technologies (such as drones, cognitive AI and IoT converged operational technologies) will grow at a rate of three times GDP, outpacing budget allotments for more traditional tech.

“Robotics, AR, VR and some of the other new things will be contributing more to the acceleration in the growth of the overall industry,” he said. “All of the new stuff is really where all the big growth is going to come from.”

So cloud and “new” tech are fueling the bulk of IT spending growth, which should be in the two-to-four per cent range this year — keeping in mind, of course, the caveats on President Trump’s tax cuts and tariff plans.

Image: iStock

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