Global IT spending shrinks as dollar strengthens

Strong dollar may not lead to real savings for IT buyers doing business with overseas firms

100 dollar bills

A rapidly rising U.S. dollar has created a "currency shock," prompting Gartner to decrease its global IT spending forecast. The research firm now expects worldwide IT spending to decrease to $3.66 trillion in 2015, a 1.3% dip from last year.

The strength of the dollar against some other currencies, such as the Euro, will affect IT buying. What 1,000 Euros bought in hardware last year, might not be enough for the same hardware this year, and that hurts demand.

The new forecast by Gartner is a significant change from its prior one. In January, Gartner put global IT spending on pace to reach $3.8 trillion, a 2.4% percent increase from 2014.

Despite the predicted decline, what's happening in IT spending is "not a crash - this is not even a recession," said John-David Lovelock, Gartner Research vice president, in an interview.

From a constant currency perspective, the global IT spending growth rate doesn't look as bad. Taking out the impact of exchange rate movements, the corresponding constant-currency growth figure is 3.1%, only off 0.6% from Gartner's prior update.

"This is putting very little change and effect on the U.S., but pretty much everywhere else around the world, costs for products and services are going up," said Lovelock. In some cases, costs are going up in overseas markets up by as much as 25%, he said.

The strengthening dollar is helping with interest in traveling to Europe as the price of a vacation declines. But what's good for travelers, isn't necessarily true for IT services purchased from overseas vendors.

Canadian and offshore service providers are still being paid in dollars, and as the dollar gets stronger and these providers convert into their country's currency, they make more money. But whether U.S. IT business customers see lower prices, depends. With new contracts, U.S. buyers will have an opportunity to re-price some of the services they get from overseas, but overseas vendors "will likely obfuscate" and not offer up the savings, said Lovelock.

If a U.S. customer is buying something like an ERP system from large vendor outside the U.S., the vendor isn't likely to sell the product at a price cheaper than a competing U.S. vendor, but they may be more inclined to offer other incentives, such as better support and maintenance. If this occurs, U.S. vendors may have to react with similar incentives.

"You're not going to spend less, but you are going to get more," said Lovelock.

For overseas consumers, it may be rough going; iPhones in Canada went up 20% this year, said Lovelock.

Among the various industry segments, results are more mixed. Device sales, including PCs, mobile phones and tablets, at $685 billion, will see a 1.2% decline globally. But some of that decline is due to weakening PC sales, or decisions to keep devices, such tablets, in operation much longer.

Enterprise software will increase 2.3%, this year, less than anticipated. But the softer increase is due to people switching over from Office to the subscription-based Office 365 model.

Copyright © 2015 IDG Communications, Inc.

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