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Global IT spend to reach $1.5 trillion by 2022

In insight / By Tanzeel Akhtar / 22 August 2017

The number of businesses embracing and updating new technology is expected to increase in the next five years.

It is expected by 2022 the global market for data centres, software, and services will amount to $1.5 trillion per year, reports Deloitte Global technology.

Change is being driven by new and faster technology which means investment in the sector is also rapidly increasing. The adoption and upgrading technology can help improve productivity but it is also altering demographics and how we operate as humans. We can expect the world to look extremely different in a couple of years time.

Research by Deloitte reported industrial products, healthcare, and financial services are among the industries embracing IT the fastest. The report identified that those companies with revenues between $1 billion and $5 billion per year are moving most rapidly to IT-as-a-Service (ITaaS).

My guess is that with technology moving so quickly and disrupting many sectors there will be a number of firms looking carefully where to invest and the type of technology to adopt in order to avoid major disruption and mass unemployment.

Deloitte also reported on a global level around a third of large enterprises worldwide were dedicating less than 10 percent of their IT spending to pay-per-use services in 2016, but the ranks of these holdouts will dwindle to the single digits by 2018.

Cost concerns are paramount. It is important to identify which technologies are disruptive and what is incremental. In the TMT Predictions 2017 report, Duncan Stewart and Paul Lee, partner and head of global TMT research for Deloitte Touche Tohmatsu Limited, discussed what’s ahead for ITaaS.

This is typically driving companies move to the usage-based consumption model that benefits from increased flexibility and scalability along with the ability to reduce capital expenditures on IT. “You’re moving it from CAPEX (capital expenditures) to OPEX (operating expenses),” Stewart explains. “Sometimes that’s a good move and sometimes that’s a bad move, but it’s always a major consideration.”

The duo explain that those companies that embrace the “flexible consumption model” may need to adjust their financial policies and procedures for procurement and provisioning accordingly, Stewart notes. The traditional ownership IT model and the flexible model will co-exist for years but there is an ongoing shift to the latter model.

Looking ahead one of enterprises’ biggest challenges associated with the shift toward ITaaS is also companies positioning themselves to take advantage of this new business model, Stewart says. “If you’re well positioned, you’re going to benefit a lot more from this trend.”

Gartner a information technology research and advisory company forecast for 2017 IT spending growth has been revised up 1% to 2.4%, an increase from 0.3% in 2016.

Global currencies and politics come into play in IT spend

As always it is important to keep an eye on global tech trends and spending. You don't have to be well versed in financial markets to understand that when it comes to fluctuating currencies and politics both come into play when it comes to IT spend. I’ve mentioned the impact Brexit will have in a previous post.

Despite Deloitte predictions global IT spend will increase by 2022 in the short term it is another story for the U.K. - Gartner says as the U.K. faces Brexit uncertainty due to the withdrawal from Europe this could wipe $4.6 billion off tech spending.

Volatile sterling is also expected to force U.S. vendors to hike prices. The dollar has also impacted IT spending in the short term.

"The strong U.S. dollar has cut $67 billion out of our 2017 IT spending forecast," said John-David Lovelock, research vice president at Gartner. "We expect these currency headwinds to be a drag on earnings of U.S.-based multinational IT vendors through 2017.”

Gartner adds the data centre system segment is expected to grow 0.3 percent in 2017. While this is up from negative growth in 2016, the segment is experiencing a slowdown in the server market.

"We are seeing a shift in who is buying servers and who they are buying them from," said Mr. Lovelock. "Enterprises are moving away from buying servers from the traditional vendors and instead renting server power in the cloud from companies such as Amazon, Google and Microsoft.”

IT spending will ramp up but first there is a short term spending pull back to endure as we surf through the waves of political uncertainty.

Tanzeel Akhtar

Tanzeel Akhtar

Tanzeel Akhtar is a freelance investment journalist. She has contributed to the Wall Street Journal, FT Alphaville, Global Investor, CNBC, Forbes, Yahoo, Spear's Wealth Management and Marketing Week.

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