Sharp IT budget cuts expected in wake of COVID-19

Sharp IT budget cuts expected in wake of COVID-19

Gartner and IDC see global IT spending dropping precipitously this year, with cloud services an exception as enterprises accelerate transformational strategies

Credit: Photo by Matt Hardy on Unsplash

PCs, smartphones and cloud apps are that much more vital for collaboration thanks to workplace lockdowns across the globe, but the economic fallout of the Covid-19 pandemic will see IT spending less on these technologies this year.

Gartner and IDC have revised their forecasts for 2020 in the wake of the pandemic, and the outlook is grim.

Worldwide enterprise IT spending, including telecommunications and business services, rose five per cent year on year in 2019, according to IDC, which pegged a similar 5.1 per cent rise for 2020 back in January. Four months later, IDC now expects overall 2020 IT spending to drop by 5.1 per cent.

Gartner is even more pessimistic, expecting worldwide IT spending to fall by eight per cent this year, compared with a rise of one per cent it calculated for 2019. Those figures conceal significant variations between sectors.

Spending on devices such as phones and PCs will see one of the biggest swings, with IDC expecting a 12.4 per cent drop in spending for 2020 compared to a rise of 0.9 per cent last year. Gartner expects an even bigger fall, down by 15.5 per cent, although by its figures, 2019 device spending of US$698 billion was already down 2.2 per cent versus the previous year.

Enterprise software vendors — which saw 10 per cent growth in 2019, according to IDC, and 8.8 per cent, according to Gartner — face a grim 2020, with IDC expecting sales to decline 1.9 per cent this year and Gartner forecasting a 6.9 per cent drop.

Telecommunications will be the least affected, both analyst firms agree, as increased demand for services such as home broadband is offset by the smaller numbers at work. IDC sees telecom spending dipping from 0.5 per cent growth last year to a 0.8 per cent decline this year.

By Gartner’s numbers, communications services spending slipped 1.6 per cent last year, and will drop a further 4.5 per cent this year.

Brighter outlook for the cloud

The prospects for infrastructure sales, however, are less clear. IDC sees this category as the lone bright spot, forecasting 3.8 per cent growth in 2020, down from 8.8 per cent last year.

Gartner, however, sees spending on data centre systems plunging 9.7 per cent this year, after a near-flat 0.7 per cent growth in 2019. The difference may be partly a question of definition: IDC’s infrastructure category includes servers, storage and networking hardware, as well as infrastructure-as-a-service. Gartner spreads sales of public cloud services, which it expects to grow 19 per cent this year, across several categories.

Both firms see growth for the cloud, with businesses expected to further adopt cloud services to offset reduced capital spending. IDC sees follow-on growth for infrastructure hardware as well, as it expects service providers to up their own spending to build out physical infrastructure to meet demand.

Cloud-based telephony and messaging and cloud-based conferencing in particular will see big gains in 2020, with Gartner projecting 8.9 per cent and 24.3 per cent boosts in sales, respectively.

Shifting IT priorities

For IT organisations facing budget cuts, Gartner advises minimising investments and prioritising on operations that keep businesses running, at least through the rest of this year.

While some longer-term cloud-based business transformation projects may be put on hold, Gartner sees businesses heading for the cloud in a big way over the next two years, with 2022 cloud spending reaching levels analysts hadn’t previously expected would be attained until 2023 or 2024.

Businesses won’t be able to just “bounce back,” especially not in heavy industry, air transport or entertainment. Recovery will require a new mindset in the IT department, and spending in those sectors could take three years to return to 2019 levels, Gartner says.

IDC expects enterprises to continue spending on existing cloud deployments, and sees speeding up cloud projects as a way to control other costs. Delaying other big projects, though, will allow for savings on external service providers and consultants and on deferred licensing and infrastructure costs.

Forrester analysts also recommend moving to the cloud, or to subscription-based services in general, to make it easier to match spending to revenue, and to cut spending on PC replacements, save for upgrades from Windows 7 to Windows 10, and machines needed for new employees or employees newly working from home.

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