Vendors poised to raise prices as NZ ICT spend stalls

New Zealand IT spending is forecast to reach NZ$11.4 billion in 2015, a slight decrease of 0.8 per cent from last year, ahead of worldwide spending forecasts which are predicted to drop 5.5 per cent.

According to Gartner findings, a decrease in spending on devices across the country, including PCs, tablets, printers and mobile phones and communications services is behind the overall decline.

Globally speaking, worldwide IT spending is on pace to total $3.5 trillion in 2015, a 5.5 per cent decline from 2014, which analysts attribute to the rising U.S. dollar.

In constant-currency terms, the market is projected to grow 2.5 per cent while in Gartner's previous forecast in April, it had forecast IT spending to decline 1.3 per cent in U.S. dollars and grow 3.1 per cent in constant currency.

At a regional level, Asia Pacific IT spending is forecast to total US$743 billion in 2015, an increase of 0.7 per cent from 2014.

However, in constant-currency terms, the market is projected to grow 4.5 per cent in 2015, revised downward by 0.5 per cent from last quarter’s forecast.

Across the ditch the market bucks the trend, with Australian IT spending is forecast to reach almost A$78.1 billion in 2015, an increase of 2.1 per cent from 2014.

In this growth, IT services represents the largest spending category at A$28.8 billion, while software is the fasting growing area of spending, expected to grow 9.8 per cent in 2015 to reach almost A$9.4 billion.

“We want to stress that this is not a market crash,” says John-David Lovelock, research vice president, Gartner.

“Such are the illusions that large swings in the value of the U.S. dollar versus other currencies can create. However, there are secondary effects to the rising U.S. dollar.

“Vendors do have to raise prices to protect costs and margins of their products, and enterprises and consumers will have to make new purchase decisions in light of the new prices.”

The Gartner Worldwide IT Spending Forecast predicts that communications services will continue to be the largest IT spending segment in 2015 with spending at nearly $1.5 trillion.

However, this segment is also experiencing the strongest decline among the five IT sectors. Price erosion and competitive threats are preventing revenue growth in proportion to increasing use within most national markets.

Mobile

In the device market, mobile phones continue to be the leading segment, with growth in Apple phones, especially in China, keeping overall phone spending consistent. However, overall smartphone unit growth will start to flatten.

Page Break

The PC and tablet market continues to weaken. The expected 10 per cent increase in average PC pricing in currency-impacted countries is going ahead, delaying purchases even more than expected.

Excessive PC inventory levels, especially in Western Europe, need to be cleared, which will delay Windows 10 inventory in the second half of the year.

Data Centre

Within the data centre systems segment, storage and network markets are both expected to see weaker growth in U.S. dollar terms as a result of the appreciation of the U.S. dollar.

Enterprise budgets for data centre systems in local spending are expected to remain stable for the year, with users expected to extend life cycles and defer replacements as a means of offsetting the price increases.

The overall near-term data centre weakness is slightly offset by a more positive outlook for the server market.

At present, the server market is benefiting from a stronger-than-expected mainframe refresh cycle, as well as increased expectations for hyperscale spending.

Software

Meanwhile, enterprise software spending is forecast to decline 1.2 per cent in 2015, with revenue totalling $654 billion.

As a result, Gartner analysts claim that many software vendors will try not to raise prices because software as a service (SaaS) is about market share, not profitability.

Raising prices could take software vendors out of a sales cycle, and these vendors don't believe they can afford to lose a client.

IT Services

IT services spending in 2015 is projected to decline 4.3 per cent.

Gartner expects modest increased spending on consulting in 2015 and 2016, as vendors have demonstrated their ability to stimulate new demand from buyers looking for help with navigating business and technology complexities, particularly related to building a digital business.

However, the forecast for implementation services has been slightly reduced. Increasingly, buyers prefer solutions that minimise time and cost of implementation, driving demand for more-efficient delivery methods, out-of-the-box implementation, and lower-cost solutions.

“IT activity is stronger than the growth in spending indicates,” Lovelock adds. “Price declines in major markets like communications and IT services, and switching to 'as a service' delivery, mask the increase in activity.”