IDC: IT spend rebounds but double-dip threat still there

Emerging markets are leading the recovery, but fragile economies in the West could cause the dreaded double dip

On the up: Global IT spend is improving but there is still the chance of a double dip

Global IT spend continues to buck the recession by heading northwards, market watcher IDC has claimed, but it also warned the industry was not out of the woods yet.

Capital spending on new hardware infrastructure is leading the trend as businesses, government and consumers use the stabilised economy to nab new PCs, servers, storage and network equipment.

Emerging markets are ahead of the game, with countries such as China, India, Brazil and Russia seeing particularly intense IT investment and market growth, IDC claims. This has led the analyst to raise its projection for annual IT spending this year to $1.51tn (£947bn), representing six per cent growth in constant currency.

Hardware spending is set to increase by 11 per cent to $624bn, while software and services spending is set to rise by four per cent and two per cent respectively, IDC claims.

Stephen Minton, vice president of worldwide IT strategies and markets at IDC, said: “The first half of 2010 was robust by any standards for the IT industry. PC shipments were strong, enterprise spending began to recover from the depths of the great recession and consumers remained enthusiastic about new devices such as smartphones.

“While the high growth rates recorded by many vendors in the first two quarters of 2010 are partly a reflection of how bad things were in the same period of 2009, there is also no doubt that it partly reflects a very real swelling of pent-up demand for hardware replacements and upgrades,” he said.

In the more mature economies of the US and Western Europe, the former is set to record IT market growth of five per cent, with the latter gaining a three per cent increase in constant currency, the analyst said. Japan is on course for growth of 0.5 per cent.

Compare this to the emerging markets, with China expected to see 21 per cent growth, India 13 per cent, Brazil 14 per cent and Russia 17 per cent.

But Minton warned that IT suppliers should not get too carried away in the celebrations just yet.

“Amid the general sense of optimism that has accompanied results from the first half of this year, there are also reasons to be wary of excessive exuberance,” he said. “Our surveys indicate that businesses are still cautious about committing to new, long-term IT projects, and are still anxious about the possibility of a double-dip recession. Decision-making cycles remain long, and many enterprises have contingency plans in place for the next 12 months which could see more projects suspended."

The industry should also be wary of a double-dip recession next year, particularly with the continuing debt crisis in many countries.

Anna Toncheva, economist in IDC’s IT markets and strategies group, said: “ " There are very real reasons to be concerned about the near-term prospects for the global economy. Financial turmoil in Europe and government austerity measures could spill over into vulnerable economies including the US and Japan. Business confidence and stock markets are still fragile, and another wave of panic in the banking sector cannot yet be ruled out. Much will depend on the willingness and ability of governments to consider further interventionist measures in the event of downside scenarios."

Based on a double-dip recession scenario, IT market growth in 2011 could be effectively flat, with less than one per cent growth, the analyst said. Recovery would then be sluggish in 2012 as mature economies, in particular Western Europe, struggled to emerge from the impact of another recession. Emerging markets would recover more quickly.

Minton concluded: "We stand in the middle of two powerful and opposing forces. On the one hand, the very real pent-up demand for new IT investment, which has driven the solid recovery in the first half of 2010 and which will hopefully continue into 2011.

"On the other hand, the potential loss of confidence in a global economy which remains extremely vulnerable to any further escalation of the European debt crisis or a deterioration in the US stock market. The next three months will be crucial to determining which of these scenarios is more likely; in the meantime, IT vendors should plan accordingly by understanding the potential impact on their near-term revenue," he said.