Gartner Forecast: 5 IT Segments On The Decline In 2015

IT Spending To Drop 5.5 Percent

IT research firm Gartner predicts worldwide IT spending will be down 5.5 percent this year as it is on pace to total just over $3.5 trillion, down from over $3.7 trillion last year. This, after global IT spending increased by 1.6 percent year over year in 2014.

The Stamford, Conn.-based research firm, however, stresses that this is not a sign of the IT market crashing, as this decline is largely due to the strengthening of the U.S. dollar. It noted that in constant currency terms, the market is actually expected to expand by 2.5 percent by year's end.

Issues that can be blamed on the rising U.S. dollar compared to foreign currency include vendors being forced to raise prices to protect costs. This causes enterprise customers and consumers to adjust their spending habits.

Here are the five most heavily impacted IT segments, in order of decline, according to Gartner.

5. Enterprise Software

Worldwide spending in enterprise software is on pace to dip by 1.2 percent to $310 billion from $314 billion last year, compared to a 5.7 percent increase in enterprise software spending in 2014.

Unlike other segments, Gartner analysts said that software vendors will do their best to refrain from raising prices because Software-as-a-Service is more about market share leading to recurring revenue than it is about profitability on a singular sale.

Gartner adds that raising prices could take software vendors out of a sales cycle, and vendors can't afford to lose clients.

4. Data Center Systems

The global storage and networking market within the data center segment are on pace to take a hit due to the appreciation of the U.S. dollar. Gartner forecasts the segment to total about $136 billion in spending by year's end, down 3.8 percent from last year's $142 billion. The segment saw a 1.8 percent increase in spending in 2014.

Users are expected to extend life cycles and defer replacements to offset price increases. However, the server market is partially offsetting the data center segment as there is a stronger-than-previously-anticipated mainframe refresh cycle.

3. IT Services

IT services is expected to see a 4.3 percent decline in global spending, according to Gartner, dropping from $955 billion last year to $914 billion in 2015. By comparison, IT services saw a 1.9 percent boost in year-over-year spending in 2014.

The research firm expects higher spending in consulting over the next two years because vendors are able to drive demand from buyers looking for help dealing with business and technology complexities.

In today's market, many businesses are looking, and even struggling, to adopt cloud services in order to build up and switch to a recurring revenue model. Consultants can assist those businesses with those issues.

Because the subscription-based model leads to lower up-front spending costs, the spending-decline number may not be an accurate depiction of how active the market is.

2. Devices

The device market is on pace to take a 5.7 percent hit in spending across the globe, according to Gartner, falling to $654 billion in 2015, from $693 billion last year. The segment saw a 2.4 percent increase in spending last year.

Mobile phones continue to be the strongest area of growth, thanks to stronger-than-ever iPhone sales, especially in China -- the largest smartphone market in the world. However, down PC sales and the tablet market losing sales are holding back that area. Gartner said there is an expected 10 percent increase in average PC prices in currency-impacted countries that is delaying purchases more than previously anticipated.

The PC market also has been impacted by retailers prepping for the July launch of Windows 10, as they had reduced their PC inventory before its launch. Because consumers are able to opt for a free upgrade, it isn't likely there will be a huge demand for new PCs after its release.

The tablet market is once again declining year over year in sales, as that market continues to see longer-than-anticipated life cycles.

1. Communications Services

Gartner forecasts communications services to once again be the largest IT spending segment this year, totaling close to $1.5 trillion. However, this is down 7.2 percent from over $1.6 trillion in spending last year, when communications services saw a 0.2 percent increase.

Gartner said communications services will see the largest decline among the five segments because price erosion and competitive threats are slowing revenue growth despite an increase in use in major markets.

As the industry adjusts to a subscription-based, As-a-Service model, up-front prices are far lower, as the name of the game is building recurring revenue and not scoring the big sale. This leads to a lower spending number when there are actually more business transactions.