Gartner Lowers Forecast for 2012 Global IT Spending

The research firm expects telecom equipment spending and enterprise software spending to hold up best.

By Thor Olavsrud | Posted Jan 6, 2012
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Gartner on Thursday lowered its forecast for global IT spending in 2012, citing the after-effects of flooding in Thailand last year, as well as a sluggish economy and the European debt crisis.

The research firm said it now forecasts worldwide IT spending to total $3.8 trillion in 2012. That represents a 3.7 percent increase from 2011 spending of $3.7 trillion, which in turn was a 6.9 percent increase over 2010 spending. Gartner had initially forecast 4.6 percent growth for 2012, but said it now expects all four major technology sectors — computing hardware, enterprise software, IT services and telecommunications equipment and services—to experience slower spending growth in 2012 than previously forecast.

Hard disk drives have been in short supply as a result of severe flooding in Thailand last year that left a third of the country under water. HDD factories in Thailand accounted for 40 percent to 45 percent of worldwide HDD production in the first half of 2011, according to research firm IDC. And as of the beginning of November, nearly half of the country's HDD production capacity was directly affected by the flooding. Assembly and component facilities were also flooded.

The shortage has had consequences that rippled far beyond HDDs. Last month, Intel said it expected its fourth quarter revenues to fall short by $1 billion, primarily due to PC manufacturers lowering their inventory levels because they couldn't stock enough HDDs. Richard Gordon, research vice president at Gartner, said the shortage will have consequences across the spectrum of IT spending.

"Faltering global economic growth, the Eurozone crisis and the impact of Thailand's floods on HDD production have all taken their toll on the outlook for IT spending," Gordon said. "Thailand has been a major hub for hard-drive manufacturing, both for finished goods and components. We estimate the supply of hard drives will be reduced by as much as 25 percent (and possibly more) during the next six to nine months. Rebuilding the destroyed manufacturing facilities will also take time and the effects of this will continue to ripple throughout 2012 and very likely into 2013."

Gartner expects telecom equipment spending to weather the storm the best, with revenue increasing 6.9 percent in 2012. It showed 7.7 percent growth in 2011. Gartner also expects the enterprise software market to follow on telecom equipment's heels, with a 6.4 percent revenue increase. Enterprise software grew by 9.6 percent in 2011.

Gartner said it expects large PC OEMs to see fewer problems than the rest of the industry. Many analysts have speculated that the HDD manufacturers will try to service large OEMs, which are their most reliable customers, first. It forecast computer hardware spending would be $424 billion in 2012, representing growth of 5.1 percent. That's down from the 7.6 percent growth it recorded in 2011.

However, even if PC OEMs see fewer problems, Gartner said no company will be immune to the effects on the HDD supply chain. It reduced its shipment forecast for PCs, saying that the effect of HDD supply constraints on HDD and PC shipments in the first half of the year would compound the effect of the general cautious environment for hardware spending.

Gartner expects telecom services to come in with 2.3 percent growth in 2012, off 6.1 percent growth in 2011. It expects IT services to grow by 3.1 percent in 2012, off 6.9 percent in 2011.

Meanwhile, Europe is expected to be a troubled spot across all IT spending.

"With the Eurozone crisis causing uncertainty for both businesses and consumers in Western Europe, we have adjusted our forecast, and we expect IT spending in Western Europe to decline 0.7 percent in 2012," Gordon said.

Thor Olavsrud is a contributor to InternetNews.com, the news service of the IT Business Edge Network, the network for technology professionals.

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