Gartner slashes tech spending growth forecast on strong US dollar, shift to the cloud

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Strong headwinds, including a rising U.S. dollar and an ongoing slowdown in the server market, have forced analyst firm Gartner Inc. to cut its forecast on global information technology spending.

In its latest quarterly Worldwide IT Spending Forecast, Gartner pegs global spending at $3.46 trillion this year, which represents a 1.4 percent increase over the previous year. That increase was halved from Gartner’s original forecast, in part because the strong U.S. dollar makes exports more expensive in foreign markets.

The second force at play is server sales, which continue to slide as companies opt to rent server space from cloud companies instead of purchasing their own machines. That’s dragging down overall data center spending, and while Gartner’s revised forecast here enters positive territory, it’s predicting only a 0.3 percent blip over 2016.

The most robust IT sector remains enterprise software, Gartner said. It projects annual spending here to rise 5.5 percent, to $351 billion, more than double the spending forecast for data center systems. In addition, software spending is expected to increase by 7.1 percent in 2018, the analyst firm said.

The impact of the strong U.S. dollar means Gartner has slashed its global IT spending forecast by around $67 billion, which will impact the earnings of U.S.-based vendors. Gartner warns that a number of them can expect to be hit by a double-whammy of currency fluctuations and enterprises’ steady shift to hybrid clouds.

“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,” said Gartner analyst John-David Lovelock. “This has created a reduction in spending on servers which is impacting the overall data center system segment.”

Meanwhile, the jump in enterprise software spending is a reflection of the shift to virtualizing servers, storage, networking and other data center functions, Gartner said. Last November, the analyst firm reported that Cisco Systems Inc. was the only major data center supplier to report gains in its quarterly sales.

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With regards to services, the rise of infrastructure and platforms is set to drive a 2.3 percent increase in spending, to $917 billion. Gartner said that although this growth is slower than the previous year, it will rebound to 4.7 percent growth in 2018, reaching $961 billion.

Gartner also looked at communications services, which is the largest segment in its IT spending forecast. The analyst firm reckons spending will remain flat this year at around $1.376 trillion, before rebounding in 2018 to almost $1.4 trillion.

Gartner said it plans to share additional analysis of its IT spending forecast during a webinar at 11 a.m. EDT Tuesday.

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