Information technology hardware manufacturers should brace themselves for a disappointing year, with spending growth likely to slow through 2017, according to a new market report from Morgan Stanley Research.

Morgan Stanley’s June 2017 AlphaWise CIO survey shows that hardware spending will actually increase by around 2.6 percent this year compared to one year ago, but that rate of growth is less than the 2.8 percent growth recorded in the year before.

Morgan Stanley said the reduced spending is thanks to hardware being given a much lower priority than other aspects of IT, as chief information officers place more emphasis on investments in things such as cloud computing, artificial intelligence, machine learning and flash storage. Spending on server hardware was given the lowest priority overall, and is directly attributed to an increase in cloud spending, the report noted.

The outlook is good for other sectors of the industry, however, with spending on software set to grow by 5 percent, services by 3.4 percent and communications by 3.2 percent, representing higher growth from a year ago.

CIOs were also asked for their opinions on digital transformation initiatives, and their responses may provide some welcome relief for beleaguered IBM Corp., which recently reported declining revenues for the twentieth consecutive quarter. In the survey, Morgan Stanley asked CIOs to rank up to three tech companies that they expect will gain the largest incremental percentage of their IT budget in 2017 as they progress with digital transformation initiatives.

Not surprisingly, Amazon Web Services Inc., Microsoft Corp. and Salesforce.com Inc. were identified as the top three recipients, but IBM ranked at No. 5, which suggests that its recent investments digital offerings might be paying off. The report noted that shifting from legacy workloads to areas such as cloud is key to IBM’s recovery. And Big Blue has “strong positioning” in growth areas such as digital transformation and artificial intelligence.

Even so, IBM faces a tougher task in the long term. As the shift to the cloud accelerates, CIOs said they expect to have about half of their workloads to be running in the public cloud by 2020, but the vast majority of IT budgets will be spent on AWS, Azure and Salesforce rather than on IBM.

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