January 10, 2011
At first glance, our forecast that the global IT market will expand by 7.1% in 2011 is right in line with the 7.2% growth we are estimating occurred in 2010 (see our January 11, 2011, "2010-2012 Global Tech Industry Outlook" report). In fact, there are many points of similarity between the two years besides the overall growth rates, such as comparable growth rates in communications equipment purchases both years, or the US and Asia Pacific growing at similar rates of growth in 2010 and 2011.
However, there are three important points of difference that I think make our projected growth for 2011 more impressive than the almost identical rate of growth that occurred last year:
- Minimal rebound effects in 2011. 2010 was the year when IT capital investment bounced back from recession-depressed levels in 2009, especially in computer equipment and to a lesser degree in software. Companies had been cutting back on purchases of servers, personal computers, storage devices, and peripherals like printers and monitors since 2007. That meant a build-up of a lot of deferred demand for replacement equipment, which was unleashed in 2010, helping to drive 11% growth in this category last year. Licensed software also felt some of these effects, with freezes on capital investment pushing purchases from 2009 into 2010. Thus, in both cases, 2010 growth rates were measured off of low bases in 2009. In contrast, the 2011 growth will reflect new demand for IT goods and services, not pent-up demand for prior years. And the 2011 growth rates will be measured off a stronger base that reflects that fact.
- A sectoral rotation from computer hardware to software and services. It is common for tech market recoveries from economic recessions to be led by computer hardware, because that is the category of purchases that CIOs can most easily and safely cut during downturns. But what gives sustained strength to tech recoveries is increased buying of software products, and along with that purchases of the IT consulting and systems integration services for implementing that software. Those two categories represent 44% of the global IT market (excluding telecommunications services), and close to 50% in advanced economies like the US. Moreover, these categories of purchases tend to be more sustained, both because some involve large projects that take many months to complete and because other smaller scale projects have fast paybacks that encourage additional investment. So, the fact that both of these categories are looking at good growth in 2011 points to continued and even stronger growth in 2012.
- A broader pattern of geographical IT market growth in 2011. In 2010, the strongest growth rates measured in dollars were in emerging market economies like Latin America; Eastern Europe, the Middle East, and Africa (EEMEA); and Asia Pacific; or in Canada (thanks to the stronger Canadian dollar). Western and Central Europe had a decline in dollar-denominated growth due to the negative impacts of Greek and Irish debt crises on economic growth and the value of the euro. While Europe is still vulnerable to these impacts, the tech market outlook for that region is brighter in 2011, while growth rates in other regions are likely to slow to high-single digits from the double-digit growth they experienced in 2010. The results will be more balanced growth in the global tech market, with all regions pulling their weight. Growth measured in local currencies will still be highest in Latin America and EEMEA, but tech vendors can expect solid growth in the much larger markets of North America, Europe, and Asia Pacific.