Inflation, supply chain disruptions and the war in Ukraine will slow IT hardware spending this year, analysts have predicted. But while investment analysts have sounded the alarm for the hardware vendors, Gartner’s lead economist told Tech Monitor that a slowdown was inevitable after the rapid spending seen during the early part of the pandemic.
Financial analysts’ ratings for IT providers including HPE, F5 and NetApp were lowered yesterday after a Morgan Stanley analyst warned of “softening orders” for hardware in the second half of this year.
While increased prices resulting from supply chain disruptions might give hardware vendors’ earnings a short-term lift, Meta Marshall warned that inflation, Covid-19 and rising geopolitical tensions are all likely to curb spending in the medium term. Shares in HPE and NetApp dropped following the warning.
Meanwhile, a Citibank analyst downgraded network equipment vendor Cisco’s stocks yesterday, citing “current supply chain challenges”; its share price fell soon after.
The latest forecast on global IT expenditure from analyst company Gartner also predicts that hardware spending will slow down this year. Spending on devices data centre systems will both grow slower in 2023 than this year, it predicts, software, IT services and communications services will accelerate, according to Gartner’s forecast.
The global crises slowing hardware spending are accelerating digital transformation, says Linglan Wang, lead economist at Gartner, as businesses accelerate digital transformation to be more agile.
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“Uncertainties over supply chains and Covid-19 have led to businesses seeking more agile and flexible solutions by moving towards cloud-based services, so there are two very different stories within the IT sector now,” Wang explains. “Hardware segments might see slowing growth, but solutions like cloud infrastructure-as-a-service will see massive growth in the next few years.”
This was reflected in a survey of IT buyers by Spiceworks Ziff Davis earlier this year, which found that hardware spending has fallen from 33% of IT budgets in 2020 to 30% this year. Meanwhile, the share of IT spend going on hosted and cloud-based solutions grew from 22% in 2020 to 26% this year.
“While hardware will continue to account for the largest share of IT spending in 2022, this category has seen steady declines year-over-year,” Spiceworks Ziff Davis predicted.
Gartner’s Wang added that tightened hardware spending is to be expected “after the historic highs in spending and demand on hardware like PCs during the early days of the pandemic, for example”.
“You can’t compete with that growth rate one [or] two years ago, so it’s still positive growth, despite it slowing down,” she explains.
The IT hardware supply chain has been disrupted by recent Covid-19 lockdowns in key Chinese manufacturing sites. It is still too early to predict the full extent of these “logistical constraints”, Wang says, but she expects them to be eased by the end of this year or in early 2023.
Read more: Here’s what we know about the global chip shortage