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Enterprise software and services to boost 2023 IT spending by 2.3%

Enterprise software and services to boost 2023 IT spending by 2.3%

While the slump in hardware device sales will take longer than expected to rebound, much of enterprise IT spending — for example on cloud technology — is locked in and inflation-proof.

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Software and IT services will drive worldwide IT spending to $4.5 trillion in 2023, an increase of 2.4 per cent above 2022, according to the latest forecast by market research firm Gartner. That's down from last quarter's estimate of 5.1 per cent growth, mainly due to a slower-than-expected rebound for hardware sales.

Enterprise spending on software and IT services is projected to increase 9.3 per cent and 5.5 per cent in 2023, respectively. However, continuing a trend from previous forecasts, spending on hardware devices is expected to decline 5.1 per cent this year as both consumers and enterprises lengthen device refresh cycles.

Otherwise, enterprise spending on data centre systems and communications services is forecast to rise modestly, by 0.7 per cent and 0.1 per cent, respectively.

Since Russia’s invasion of Ukraine, there haven’t been any big surprises in the economy, with central banks and businesses largely reacting as expected to the current inflationary economic situation, said John-David Lovelock, a vice president and analyst at Gartner.

However, while he said that Gartner expected to see a decline in device spending due to the impact of inflation on consumer spending power, the refresh cycle has been even longer than anticipated.

“People are learning that they can hold on to a device longer and still be content,” Lovelock said, noting that this trend is likely to carry throughout 2023 and into 2024, when Gartner expects to see some of the backlog in purchases pick up.

However, unless devices — in particular phones — are seen to be offering new levels of functionality or a real reason to upgrade, he warns device sales could remain flat for a long while.

Enterprise cloud spending is locked-in

While consumers have been hit hard by inflation, Lovelock said that a lot of the spending on the enterprise side is locked-in, recurrent spending, particularly in the managed services, cloud, SaaS,PaaS, and telecommunications markets.

“All of these things are locked in longer-term contract,” he said. “Even servers, networking, or equipment storage — you're ordering last year for delivery this year.”

And although Gartner does not provide a breakdown on security spending in its IT spending forecast, Lovelock also believes that security spending will continue to grow as companies rethink their approach to protecting their environment.

The IT services market is also experiencing a growth period as companies look to bring in outside IT staff for implementation and support. For example, Gartner expects spending on consulting to reach $264.9 billion in 2023, a 6.7 per cent increase from 2022.

Despite the widespread and ongoing layoffs that tech companies are currently experiencing, many of the job cuts have involved nontechnical staff. Furthermore, according to research undertaken by Skillsoft in November 2021, around three- quarters of IT decision-makers worldwide claimed to be facing critical skills gaps across tech department.

Lovelock said that CIOs are losing the battle for talent, meaning that across every industry, IT services spending is growing more quickly than internal services. Consequently, skilled IT workers are migrating away from the enterprise toward technology and service providers who can keep up with increased wage requirements, development opportunities and career prospects.

While a turbulent economy has changed the context of business decisions and caused CIOs to become more hesitant, delay decisions or reorder priorities, Lovelock said IT spending appears to be inflation proof.

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Tags GartnersoftwareManaged Services

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