October 15, 2010
Like many business executives and consumers, I have been paying a lot of attention to the economic indicators, looking for signs either of a stronger economic recovery or a potential renewed recession. As a technology market analyst, I track economic indicators because I’ve found that the growth in the economy is one of the best predictors of what the technology market growth will be — far better than surveying CIOs to find out their spending plans, which tend to be backward looking.
Based on my reading of the economic indicators and the forecasts of professional economists, it looks to me that both the US economy and the global economy will fall between extremes of strong growth or recession, growing weakly but not slipping back into recession. As a result, in Forrester's latest forecast (US And Global IT Market Outlook: Q3 2010), we have trimmed our forecasts for the US tech market to a still-robust 8.1% growth for 2010 (down from our 9.9% forecast in July), with 7.4% growth in 2011. Globally, the tech market measured in US dollars will grow by 7%, compared with our July forecast of 7.8%, with the somewhat weaker outlook for the US tech market offsetting slightly better performance in Europe and strong growth in Latin America, the Middle East, Africa, and Asia/Pacific.
These forecasts include business and government purchases of computer equipment, communications equipment, software, IT consulting and systems integration services, and IT outsourcing. If we add telecommunications services (as we do for the first time in this report), US information and communications technology (ICT) market growth in 2010 will be 5.6% and 6.6% in 2011.
With half a year’s data already in hand, US computer equipment is set to pop by 19% in 2010, with all categories growing at double-digit rates. US software purchases will rise by 9.1%, with operating system software, middleware, and applications sharing the growth. Communications equipment purchases will go up by 5.5%, led by enterprise and small and medium-size business (SMB) buying. IT services growth will lag a bit, with systems integration projects picking up late in 2010 as licensed software buying increases. But US IT outsourcing and telecommunications services sales will lag, with the former rising by just 2.8% and the latter slipping by 0.9% in 2010.
Looking ahead to the next few quarters, I do think that computer equipment vendors have already seen the best growth for the year, with growth rates shifting down into single-digit rates in 2011. Communications equipment vendors face choppy watters, with strength in enterprise demand for unified communications and videoconferencing, weaker demand from carriers in the US and Europe (but still strong in emerging markets), and new competition as computer equipment vendors like HP get into the market. On the other hand, software vendors can expect to see stronger growth in the rest of 2010 and into 2011. While application vendors are likely to report soft growth for Q3 2010 as buyers paused to take the economic temperature (both Oracle's app revenues and Lawson's revenues for their quarters ending in August 2010 posted mid-to-low single digit growth rates), this software category should return to strong growth in Q4 2010 and beyond. As software purchases pick up, IT consulting and systems integration services revenues will also rise (Infosys today reported a 37% increase in project-related revenues in calendar Q3, and Accenture earlier reported 6% growth in its project revenues in its quarter ending in August 2010). Revenue growth for IT outsourcing will lag the growth in IT consulting and systems integration (already reflected in both Accenture's and Infosys' revenues), while telecommunications services revenues will start to turn positive in 2011.