Software sales defy the economic outlook

Gartner forecasts that global IT spending will reach $4.5 trillion in 2022, a 3% increase from 2021. Although business IT spending has increased, device sales have slowed in 2022 compared to 2021. Cuts in spending on consumer PCs, tablets and printers led to a 5% decline in devices, according to Gartner.

“Inflation is everyone’s top priority,” said John-David Lovelock, Distinguished Research Vice President at Gartner. “Central banks around the world are focused on fighting inflation, with headline inflation rates projected to fall by the end of 2023. However, current volatility in both inflation and exchange rates is not expected to discourage CIOs from investing in their 2022 plans. Organizations that fail to invest in the short-term are likely to lag in the medium-term and risk not being there in the long-term. “

Referring to the decline in gadget spending, Lovelock said that while macroeconomic conditions have impacted gadget sales, behind the numbers is a change in spending habits. “In the consumer space, people are putting their hands back in their pockets,” he said. “Those in the lower income bracket do not buy devices. This year, units have gone down and spend has gone down, but the average selling price has gone up.”

Gartner numbers show an inflationary effect on products, fueled by supply issues and price increases due to chip shortages. Lovelock said: “The real effect is that the mix of device sales changes. Low-end phones don’t get bought, but high-end buyers still buy high-end phones.”

Software revenue is expected to grow from $164 billion in 2021 to $170 billion in 2022 and $182 billion in 2023. Lovelock said that Gartner’s forecast 10.68% increase from 2021 to 2022 is counterintuitive given the recession potential, but it demonstrates the importance of IT to business. “IT has moved beyond the back office function,” he said. “It has evolved from Capex to Opex and is now a revenue generating function. If you want to increase revenue, spend more on IT.”

Gartner data also shows that price hikes and supply uncertainty, exacerbated by the Russian invasion of Ukraine, have accelerated the transition in purchasing preference among CIOs and businesses in general from ownership to service – pushing cloud spending to 18.4% growth % in 2021 and expected growth of 22.1% in 2022.

Demand for cloud services is not only transforming the IT services industry, but according to Gartner it will also drive spending on servers by 16.6% through 2022 as hyperscalers expand their data centers.

Data center equipment spending is projected to grow from $191 billion in 2021 to $212 billion in 2022 and $222 billion in 2023, and Lovelock called 2022 “a special year” in the data center spending forecast. “There have been cutbacks in service delivery, a spike in server prices, and it’s been a watershed year for hyperscalers to buy whatever they can get their hands on,” he said.

Gartner reported that sales of servers shipped to outside service providers are up 25.4% this year, and sales of servers to businesses are also up. According to Lovelock, companies are paying off the tech deficit as spending was cut last year. “Enterprises are not giving up their on-premises environments,” he said. “Long term, Gartner sees 2% growth in enterprise servers. However, spending on new initiatives goes to cloud services.”

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