Gartner: 5 (Mostly Negative) Ways IT Spending Will Change In 2015

IT Spending Downturn And Increasing IT Opportunities: Behind The Gartner Estimates

Analyst firm Gartner's estimates that worldwide IT spending in 2015 will fall by about 1.3 percent compared with 2014 is no reason to become pessimistic, according to solution providers who work in such key areas as mobility, data center, software and services.

Indeed, those solution providers say, the fall in IT spending spells opportunities as it is resulting from a shift in spending from hardware to software and services, and from infrastructure to the cloud.

CRN talked to solution providers with experience in the kinds of technologies Gartner wrote about in its report, and found them to be already taking advantage of the shifts that drove Gartner to reach its conclusions. Turn the page for details of the report and for a reality check from the channel.

Gartner: Five Ways IT Spending Is Changing

Gartner in its report estimated total worldwide IT spending in 2015 would fall compared with 2014 by 1.3 percent, to reach $3.7 trillion. That compares to 2014 growth in IT spending of 0.9 percent. That is also down considerably from a Gartner estimate in January that 2015 IT spending would actually rise 2.4 percent.

Enterprise software spending is expected to grow the most in 2015, up by 2.3 percent, to $320 billion. Data center systems spending will also grow, but by an anemic 0.4 percent. The biggest part of IT spending, telecom services, will also see the biggest drop, Gartner said. Spending on devices and on IT services will also fall.

Gartner blamed much of the fall on currency changes because of this year's strong U.S. dollar. But IT solution providers see spending changes more a result of shifts in where budgets are spent.

Gartner: Spending On Devices: Huge Dip From Growth To Retreat

Gartner estimated total 2015 worldwide spending on client devices including PCs, mobile PCs, mobile phones, tablets, and printers) for 2015 will fall about 1.2 percent, to $685 billion. This represents a huge change from 2014, when spending on devices actually grew by 2.4 percent.

Gartner blamed much of the drop in spending on slower PC purchases in Western Europe, Russia and Japan, in large part to local currency devaluation. Currency, however, has little impact on the mobile phone market, Gartner said.

However, spending on smartphones was flat year-over-year as rising demand for lower-priced smartphones in emerging markets negated the increased demand for premium smartphones, Gartner said.

Jerry Pape: Innovation Impacting Mobile Devices

The drop in revenue for mobile devices, especially smartphones, is mainly a function of an ongoing shift in innovation, said Jerry Pape, principle at Excalibur, a Bozeman, Mont.-based solution provider and longtime Apple partner.

Everybody who needs a mobile device pretty much already has one, Pape told CRN. "There are two types of people," he said. "Those with less capable devices will shift to more capable devices over time. And those with more capable devices will not go back."

Mobile device users look for usability, security and return on investment as measured by how much they enjoy the device and how useful they find it, Pape said. "Further penetration of this business will be driven by usability, productivity and enjoyment, and not by adding some new 'whizzy' feature," he said.

Gartner: Data Center Spending Growth Slowing From Currency, Margin Pressure

Data center system spending in 2015 should reach $142 billion, or just 0.4 percent higher than spending in 2014, Gartner said. That represents a big slowdown from the 1.7 percent growth the market experienced in 2014.

Gartner blamed currency changes for part of the slowdown in sales of external controller-based storage, enterprise network equipment and servers. However, Gartner said, margin pressure on the server industry has had a major impact on spending.

The slowdown in server, storage and networking spending does not mean a slowdown in demand. Gartner and IDC both have reported, for instance, that server volumes are growing much faster than server revenue.

Chris Saso: Growth Any Way One Defines Growth

Chris Saso, executive vice president of technology at Dasher Technologies, a Campbell, Calif.-based solution provider, told CRN his company is actually a lot more optimistic about the market than Gartner is.

Saso said one could look at the Gartner numbers in two ways: selling the same technology to more customers, or selling more technology to existing customers.

"I would still say we are seeing growth from existing clients buying the same type of technology they have been buying," he said. "That's still in the low single digits. Our overall growth rate is much higher. But that's in part due to selling more new technology like OpenStack."

Data center systems growth is also coming from customers who were born in the cloud but who now realize they need a physical infrastructure to provide data locality or performance, Saso said.

Gartner: Enterprise Software To See Slower Growth

Enterprise software spending is leading the way for IT spending growth, with Gartner expecting this part of the market to grow 2.3 percent to reach $320 billion in 2015. However, Gartner said, that is still a significantly lower growth rate than the 4.3 percent experienced from 2013 to 2014.

Gartner blamed the growth slowdown on the rising adoption of Microsoft Office 365, which is disrupting the sale of traditional office suite applications. That, Gartner said, is resulting in lower revenue growth because of the shift away from on-premises software sales.

Larry Velez: SaaS And The Cloud Will Pull Down Software Spending

Customers are spending less on hardware and traditional software while increasingly shifting to SaaS solutions, said Larry Velez, chief technology officer and founder of Sinu, a New York-based MSP.

"Customers might need to upgrade their accounting system, but instead of buying five new servers and an application, they're investing in SaaS," Velez told CRN.

As a result, Velez said, he is seeing less investment in internal infrastructure and more in cloud and services. "As business solutions age, customers are interested in the cloud and services for their updates," he said. "Just a few years ago, no one even considered SaaS solutions for things like hedge fund and portfolio management, but they do now."

Gartner: IT Services Spending Turns Negative

Gartner said spending on IT services will drop in 2015 compared with 2014 by about 0.7 percent, to $942 billion, which is quite a change from 2014, when spending rose 1.8 percent.

Implementation services are taking the biggest hit, said Gartner, which used the U.S. oil and gas industry as an example.

"Although the oil and gas industry is only 1 percent of the IT services market, oil and gas buyers historically react quickly when their prices drop, often cutting back on spending 20 percent or more. Because the U.S. is a large oil producer and a large market for IT services, the largest spending reduction on services is expected to take place in the U.S. through 2015 and 2016, with an early impact on implementation services," Gartner wrote.

Dan Molina: Automation, Software-Defined Taking Over From Hardware

General purpose IT hardware is more and more a commodity, while modern technology such as converged infrastructure and hyper-converged infrastructure is bringing services to the forefront, said Dan Molina, chief technology officer at Nth Generation Computing, a San Diego-based solution provider.

"Vendors are also doing more with software to automate many of their IT processes, and are increasingly adopting public and private clouds," Molina told CRN.

At the same time, a move to adopt software-defined data center technologies, which separates the software from the underlying hardware, is simplifying the data center, Molina said.

"For instance, with disaster recovery in the past, you made a change in configuration, and then you had to physically go to the DR site and change the equipment," he said. "With software-defined solutions, it can all be done remotely."

Gartner: Telecom Services Worst Performing Segment

Telecom services spending is expected to shrink by 2.6 percent in 2015, to about $1.57 trillion, making it the largest segment in IT spending but also the worst performing. This comes on top of a 0.8 percent drop in telecom services spending from 2013 to 2014, Gartner said.

A major factor, Gartner said, was the reduction in total connections for the U.S., several Western European and other developed markets because of a lower-than-expected growth in data-only connected devices and multi-SIM connections.

Jamie Shepard: Telecom Services A Mature Market

Telecom is an incredibly mature market, but one in which a host of new solutions are upsetting the business, said Jamie Shepard, regional and health systems senior vice president at Lumenate, a Dallas-based solution provider.

Shepard told CRN that solutions like those from Nashua, N.H.-based software-defined networking startup Plexxi are making it possible to scale out networks in line with application requirements.

"These technologies see what customers need and provide it," Shepard told CRN. "This ripples across the industry. Software-defined and scale-out is taking a big bite out of the telecom market. One hospital CEO we work with saved $500,000 a year by bringing telecom expenses in line. He said he has no need to spend more on telecom. He can just use his existing infrastructure with software to auto-configure networks for specific jobs.