US tax cuts and dollar’s decline propel datacentre spending

A decline in the US dollar’s value is driving IT investment, analyst Gartner has reported in its latest forecast.

Global IT spending is predicted to grow by 6.2% in 2018 – the highest rate Gartner has forecast since 2007.

John-David Lovelock, research vice-president at Gartner, told Computer Weekly: “With currency, the primary effect is that a US-based company will make more money.”

This means that US-based server, PC and mobile phone manufacturers have an opportunity to drop their prices for overseas customers.

Lovelock said the new pricing level provides an opportunity for CIOs to renegotiate on, for example, the cost of cloud contracts, many of which are provided by US-based businesses.

Gartner said it expects worldwide spending on datacentre systems to grow by 3.7% in 2018, down from 6.3% growth in 2017. “The longer-term outlook continues to have challenges, particularly for the storage segment,” said Lovelock.

He said US businesses used a change in tax to enable them to offset the cost of their datacentre equipment purchases in 2017, which resulted in a jump in sales. “There was a brief period when I could buy a server and put the depreciation in 2017, which gave an extra tax write-off,” said Lovelock.

Lovelock said this tax break in the US, combined with price cuts, meant Gartner saw a big leap in sales growth in the fourth quarter of 2017 from the typical server companies HP, Dell and Lenovo.

The continued shortage of components is set to carry on through 2018, leading to prices rising more quickly than previously expected. “Whereas previously, component shortages were expected to ease into 2018, the shortages are now expected to continue throughout the year, with the supply not expected to ease until the end of the year,” said Lovelock.

He said there will be a rebalancing of datacentre equipment pricing during 2018, as higher prices for components begin to offset the lower pricing. Gartner predicted that datacentre spending will eventually settle down in 2019, growing at 1.1%.

Meanwhile, spending on enterprise voice and data networking in business is expected to decline by 2.2% in 2018, while enterprise mobile voice and data spending is forecast to grow by 1.9%.

Gartner’s figures predict 11.1% growth in spending on enterprise software driven by the software industry capitalising on the evolution of digital business. The analyst said application software spending would continue to rise through 2019, and infrastructure software would also grow, bolstered by modernisation initiatives.

“Cloud has allowed us to take spending out of other areas,” said Lovelock. “Software is cannibalising dollars that used to go into different areas.”

Rather than buy full-blown software suites, businesses can use open APIs and buy minor functionality such as web browser add-ons, he said.

According to Gartner’s forecast, sales of PCs, tablets and mobile phones will grow in 2018, reaching $706bn, an increase of 6.6% from 2017. “The device market continues to see dual dynamics,” said Lovelock. “Some users are holding back from buying, and those that are buying are doing so, on average, at higher price points. As a result, end-user spending will increase faster than units through 2022.

“However, total end-user spending and unit shipments are expected to be lower compared with previous forecasts, as demand for ultramobile premium devices, ultramobile utility devices and basic phones is expected to be slow.”

However, Lovelock said he did not expect a rush from enterprises to update older PCs as they migrate off Windows 7 and onto Windows 10. “Windows 10 can be lighter running on existing Windows 7 hardware,” he said. “We are seeing PC life extended across the board.”

There is also little interest among IT decision-makers to upgrade hardware to protect against the Spectre processor flaw. Lovelock said: “It is surprising how little interest there is in Spectre.”