IDC: 2002 projected as worst year for IT revenue growth

IT market researchers at IDC say the worldwide IT industry will suffer a drop in revenue of 2.3% this year, the largest decline ever.

The researchers predict the total worldwide IT industry revenue this year will contract to $875 billion, a figure lower than forecasts as recently as August when total IT revenue for the year was expected to remain above $900 billion.

The analysis, derived from IDC’s research presence in 43 countries as well as surveys of business executives, was first presented Nov. 14 at IDC’s IT Spending Outlook conference in Santa Clara, Calif. The research company offered further guidance on its figures during a global teleconference with clients on Thursday, a spokesman for IDC said Monday.

This year’s revenue drop combined with a decrease last year means the IT industry has shrunk by roughly 3% over the past two years, said John Gantz, chief research officer at IDC. This compares with an average annual growth rate of 12% in the IT industry over the past 20 years.

Looking forward to 2003, however, IDC said IT spending is expected to pick up, driving a worldwide growth rate of 5.8% for the industry.

Major contributors to this year’s decline include a 9.3% reduction in the worldwide systems market, which includes PCs, servers and workstations. In addition, the worldwide storage market shrank by 10.6% in 2002, while the worldwide network equipment market suffered a 7.6% decline as sales to telecommunications service providers dropped sharply.

Also this year, the services market, which today represents over one-third of total worldwide IT revenue, underwent a dramatic decline as the average contract value fell to a three-year low, IDC said.

Although IDC expects IT spending to resume growth in 2003, it cautioned against unrealistic expectations in specific sectors. Software spending, for example, will remain weak, and price competition will inhibit revenue growth in the hardware sector. Growth of services will be restricted as companies invest in projects that are smaller in scope than in prior years.

Beyond 2003, IDC expects growth rates to improve for several years followed by slower growth later in the decade.

IDC also emphasized that significant changes in the economic or geopolitical environment, such as a prolonged war in Iraq or another plunge in the stock market, could result in lower growth rates for IT spending. Because of the possibility that these events might take place, IDC for the first time produced an alternate “downside” forecast. Under these more negative conditions worldwide IT spending growth next year would be closer to 2%, IDC said.

In previous years, events such as a greater-than-expected decline in the stock market and a sharp increase in the price of oil have had an unexpected impact on economic conditions, Gantz said in an interview Monday. IDC’s “downside” forecast takes some of the unknowns into account.

“We learned the hard way that external events can change enough to affect our forecast,” Gantz said. “Basically we are hedging our bets.”

Researchers used more favorable assumptions to arrive at the 5.8% growth rate for 2003. Broken down geographically, IDC expects IT spending to grow 4.4% in 2003 in the U.S., led by renewed demand for servers, security and network equipment. Storage and software are expected to enjoy more robust growth starting in 2005, while PC revenues will resume their decline after 2004.

Although Europe is not expected to match U.S. economic growth over the next several years, IT spending will grow 5.4% in the region next year, followed by several more years of solid gains, IDC predicts. IT spending in Japan will mirror the U.S., while the rest of the Asia-Pacific region will experience more substantial gains through the forecast period. After a difficult 2002, Latin America will enjoy 8.7% growth next year and double-digit growth through 2006.

The industry won’t return to the kind of growth enjoyed before the downturn, but there will be a number of bright spots over the next several years, Stephen Minton, director of worldwide IT markets and strategies, said a statement. Innovation and value will be important drivers that lead the industry back to health, he said.