February 15, 2021
Timothy Prickett Morgan
Those who run businesses always keep two sets of data in their heads. One set is how their own business is doing relative to itself over past months, quarters, and years. And the other is how the economy at large is doing. Figuring out the correlation between the two, and what to do as these two data sets converge – or don’t – is essentially the task of upper management. It’s an art, not a science.
Around this time every year, we like to take a survey of what the big IT consultancies say in regard to IT spending to give the rest of you the second data set on which to compare against the data set describing their own business. Given this, we can figure out what to do: Do we give raises? Do we hire new people and invest in new projects? Do we upgrade systems? Do we cut expenses and hold on tight?
It is hard to say what to do. As far as we know, the analysts and economists at IDC put out their IT spending forecasts for 2021 in November 2020, and this chart from Stephen Minton, program vice president with the IDC Customer Insights & Analysis group, is fascinating:
You will note that overall IT spending, in the broadest sense, declined faster than global gross domestic product in both the dot-com bust in 2001 through 2003 and did the same again during the Great Recession in 2008 and 2009. Interestingly, and due we think to the integral nature if IT to our society and culture, IT spending declined a lot less than GDP did during the Great Infection of 2020. And Minton is expecting for GDP growth to rebound in 2021, helping to drive IT spending once again. Of course, this will not be precisely rebound the same in every geography or industry segment, and recovery will take its various paths in this regard.
Just like the declines downward did. And, it is worthwhile reminding everyone how the initial forecasts from Minton when the pandemic hit were pretty optimistic, with modest declines forecast in March 2020, and then as we rolled into April, they got a little more pessimistic. Before the pandemic hit, with the January forecast from IDC last year, GDP was going to rise by 2.4 percent worldwide and IT spending was going to rise by 5.1 percent. In February, when the pandemic was impacting China and spreading around Europe and the United States, GDP growth was cut to 2 percent flat and IT spending was cut to 4.3 percent. And by March, when we were in lockdown, GDP growth flipped to a 1.7 percent decline and IT spending growth was projected to be off by 2.7 percent. It is interesting to note as well that in IDC’s March 2020 forecast, Minton was projecting that infrastructure spending would rise by 5.3 percent even with the pandemic – mostly due to the hyperscalers but also to modernization projects compelled by the pandemic itself. The latest forecast we can find from IDC, which categorizes things a bit differently, shows information and communications technology spending (ICT), which is a broader metric, flat from 2019 to 2020, to $4.9 trillion, but hardware spending (including PCs, smartphones, and tablets as well as datacenter hardware and edge stuff and telco gear) down 8 percent. IDC has not done a datacenter IT spending recap as yet, but we will keep an eye out.
Our point in bringing this up is a simple one. At the very moment when we need the best projections for IT spending and economic growth or decline is the very moment when it is chaotic and almost impossible to deliver a forecast that ends up being accurate. We don’t think Minton is bad at his job – he is one of handful of people in the world that is really good at this. It is more that the job gets impossible, like trying to read the position of a particle and its velocity with equal precision, which the Heisenberg Uncertainty Principle says you can’t do.
The prognosticators at Gartner have dusted off their crystal ball and gazed into it for a while as well as taken a hard look in the rear view mirror, and believe that overall IT spending – that’s the whole enchilada with telecom gear and services – fell by 3.3 percent to $3.695 trillion in 2020 but will rise by 5.8 percent to $3.923 billion in 2021 and will continue to rise by 4.4 percent to $4.105 billion in 2022. (If you are interested, I did a deep dive on the Gartner historical data for IT spending over at The Next Platform, which you can see here.) If you look at the core IT market – my term, not Gartner’s – which is comprised of datacenter systems, enterprise software, and IT services, that rose by 8.1 percent to $1.732 billion in 2019, fell by 2.4 percent to $1.692 billion in 2020, and is expected to rise by 6.4 percent to $1.807 billion in 2021 and then another 6.6 percent to $1.934 billion in 2022.
If your IT budget is geared to this, the Great Infection was not anywhere as disruptive to your company and probably not yourself as the dot-com bust or the Great Recession. Not that there were not challenges, I am sure. It has been a rough year that is going into its 14th month soon if you count from January 15 as I do, when the coronavirus outbreak in China became known and we here at Guild Companies headquarters in Boone, North Carolina, probably caught it from traveling to New York City in late December and when we started preparing for the economic effects of the pandemic that we saw in our future. We now have a lot more storage space for food and other supplies, which is a good side effect and which we wanted anyway because, at a certain level, we don’t trust supply chains. They run a little too tight for our tastes, and growing up poor as I did, there is nothing quite like having a fully stocked larder and extra freezer. The root cellar comes next if I can grow cabbage and brussel sprouts well, which I have not been able to do yet in my climate in the mountains. But I will figure it out.
Neither IDC nor Gartner show IT salaries as part of their spending projections, which is a shame because as we all know, this is a much bigger part of the picture – maybe even at hyperscalers and cloud builders, although they don’t talk about it. But Forrester Research takes a stab at this with its IT spending projections in the United States by projecting out data from the U.S. government – specifically the Commerce Department’s estimates of IT hardware and software spending and the U.S. Census Bureau’s estimates of spending on tech consulting, tech outsourcing, and telecom services. The government data runs from 2016 through the first two quarters of 2020 and then Forrester filled in the gaps for the end of 2020 and projected out to 2021.
You can take a look at this data here, and remember, this is US data only. The interesting bit is that it has IT staff compensation spending, which it calls “CIO staff spending” and isn’t that an odd term right there. Anyway, if you look at that line item in the tech budget for the United States, Forrester says it grew by 6.8 percent in 2019 to $381 billion, and has been growing at an accelerating rate since 2017. But in 2020, direct people costs fell by 3.6 percent to $367 billion, and only are expected to rise by 1.2 percent in 2021 to $372 billion. Our guess is that if this data is representative, it will take until late 2022 or early 2023 to get compensation levels back where they were.
The U.S. government-Forrester data, by the way, shows spending on computers and peripherals of all kinds (business and consumer) rose by only 0.6 percent to $106 billion in 2019, and rose by 8.4 percent in 2020 to $115 billion and is expected to decline by 5.4 percent in 2021.Software spending took a modest hit of a 0.2 percent decline in 2020 to $387 billion, but had been averaging north of 7 percent growth per year for the prior four years and is only expected to rise by 1.2 percent in 2021. Outsourcing and consulting took similar hits and are going to stay down. And the net effect is that overall IT spending in the United States – people and wares – fell by 2.5 percent to $1,716 billion in 2020 and is going to decline by 0.4 percent in 2021 to $1,710 billion.
There are a lot of data sets and they don’t all match their categories or their ups and downs. And this is frustrating. But for IBM i shops, this is really more of the landscape of a continent than the local terrain they have to negotiate. As I have pointed out before, the IBM i base is its own community with its own type of companies and its own economic segment with an underlay of different industries and geographies but with a pretty consistent, conservative, and hopeful attitude. We miss a lot of the exuberant rises, but we also miss some of the cliff drops, too.
Accelerating DX Does Not Necessarily Mean Spending More Bucks
Love – And Business – In The Time Of Coronavirus
IT Starts To Feel The Impact Of The Great Infection
The IT Sector Could Weather The Pandemic Storm
As I See It: Adaptations
Thoroughly Modern: Why You Need An IT Strategy And Roadmap
POWERUp 2020 Pushed Online By Coronavirus Continuing Spread
ERP Deployments Shift Cloudward, Even On IBM i
Unperspective: Are You Still Pushing A Hand Mower?
Thoroughly Modern: Digital Modernization, But Not At Any Cost