How fourth-quarter 2012 will affect IT spending in 2013

1Executive Summary

Worldwide IT spending finished out 2012 with a growth rate of 3.8 percent over 2011, the lowest growth rate since 2009. Fourth-quarter 2012 earnings reports and guidance were notable in their lack of any decisively positive news to raise 2013 spending expectations much.

Those optimistic about 2013 point to the second half of the year (now only four months away) as when we’ll begin to see some stronger growth. In their view, Europe will be better, the U.S. will be stronger, China will begin to reaccelerate in earnest, currency will be stable, and (perhaps most importantly) the year-over-year (YoY) comparisons between 2012 and 2013 will be easier because mid-2012 was so weak. Moreover, as EMC CEO Joe Tucci stated during the company’s recent earnings call, “You can’t starve IT for too long,” which suggests that better times must get rolling again. On the other hand, CEO John Chambers’ statement in the Cisco earnings call, that perhaps 2012 represents the new normal, might be a better indicator of what we can expect in 2013. We’ll see.

That said, here’s what we’re expecting for 2013.

Table 1. 2012 and 2013 worldwide IT spending (in $ billions)

Market segment 2011 2012 2012 growth rate

2013

2013 growth rate

Note
Smartphones and tablets

$213

$265

24.4%

$319

20.4%

Smartphones and tablets
Hardware

$429

$419

-2.3%

$423

1.0%

PCs, servers, storage, peripherals, network
Software

$256

$270

5.5%

$291

7.8%

Systems, middleware, solutions
Service

$797

$805

1.0%

$826

2.6%

Consulting, IT outsourcing, systems integration, BPO, education and training, maintenance
All spending

$1,695

$1,759

3.8% $1,860 5.7%

Overall, smartphones and tablets will lead the way, with a 5.6 percent worldwide IT growth rate in 2013. While Apple’s tepid forward guidance in its recent earnings call and its implications for smartphones and tablets gives us pause, we expect the category to continue to lead, with growth in the 20.4 percent range in 2013. In hardware, 2013 will look like 2012, with smartphones and tablets buoying the otherwise-weak spending in the PC, peripheral, and server segments. (This will be offset somewhat by stronger storage and network hardware spending.) Software continues to flourish — especially solutions-related software like SaaS-enabled customer-relationship management (CRM), supply-chain management (SCM), and industry vertical systems like health care. This sector will continue to grow in 2013. Finally, services has experienced a punishing 2012, and this area will only look modestly better in 2013.

A methodological note: We’ve reevaluated our model and determined that we have underweighted business-process outsourcing (BPO) as a service category. As such, we are restating 2012 and 2013 growth rates to accommodate a higher weighting of BPO in our services spending. The net is that growth in services and all spending are a bit more robust, since BPO is growing faster than the aggregate of traditional IT services. The full methodology can be found at the end of this report.

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