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Transformation

Surging US dollar curbs global IT budgets

5.5% fall masks increased activity, says Gartner

Graph of US dollar going up CC 2.0 https://www.flickr.com/photos/68751915@N05/ 401kcalculator.org.

Global IT spending is projected to fall 5.5 per cent to total $3.5tn in 2015 - but only because of the strong US dollar.

Translated into constant currency, the worldwide IT market will grow 2.5 per cent compared with 2014, according to Gartner’s latest IT spending projections.

So will US vendors raise prices outside their own country - or hold tight?

The answer is: it depends on the sector they are operating in, with communications (1,492tn / -7.2 per cent) and IT services ($914bn / - $4.3bn) - and to a lesser extent enterprise software ($310bn/ -1.2 per cent) - experiencing price declines across the board.

In addition enterprise software spending is under pressure from the growing emphasis on software as a service as a delivery mechanism.

Many vendors will try not to raise prices in this sector because “SaaS is about market share not profitability”, Gartner says. "Raising prices could take software vendors out of a sales cycle, and these vendors don't believe they can afford to lose a client.”

Price erosion is masking increased activity in all three areas, according to Gartner’s John-David Lovelock."We want to stress that this is not a market crash. Such are the illusions that large swings in the value of the U.S. dollar versus other currencies can create," he said.

Data centre systems ($136bn / -3.8 per cent) and devices ($654bn / -5.7 per cent) will see price rises this year. Data centre customers will combat this by delaying hardware refreshes, resulting in lower than previously forecast unit shipment growth for networking and storage sales.

However, near term weakness will be offset a little with an uptick in server shipments. Gartner attributes this to a “stronger-than-expected mainframe refresh cycle, as well as increased expectations for hyperscale spending”.

In the devices sector, vendors are imposing price rises averaging 10 per cent on PCs - not surprising considering the profit margins at play here. This will weaken further an already ailing sector, especially in Western Europe, where unsold PCs are stockpiling up. And that in turn means that Windows 10 shipments will be slow to get going in the second half of the year.

Mobile devices revenues continue to hold up well, fuelled by sales growth of Apple phones in China. But the boom times for smartphones may be coming to an end as unit growth starts to tail off. ®

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