Coronavirus: The dawning of a new IT spending era

coronavirus over crowd of people
IT spending is hit by the impact of the coronavirus, which could lead to a significant slowdown this year, according to IDC. (Pixabay)

The impact of the coronavirus has rippled across the IT sector for both buyers and vendors as they face a new set of assumptions and a new global economy, according to recent research. The condensed version of International Data Corporation's most recent data is: "Things could get worse, but hopefully not."

Based on data indicators from the first quarter of this year, International Data Corporation (IDC) said it expects to see a "significant" slowdown on hardware spending in particular in the first half of 2020. With the coronavirus' impact reverberating across all sectors of the economy, including trade, supply chains and business planning, software and services spending will also be impaired.

Taking the "glass is half empty" approach, IDC said IT spending could grow by 1% by the end of 2020 compared to its original forecast of more than 4% growth. Not surprisingly, IDC said it was more likely that the forecasts would trend down rather than up over the coming weeks.

According to the IDC's Worldwide Black Book Live Edition for February 2020, IT spending is projected to grow by 4.3% in constant currency terms this year, reflecting downward adjustments to forecasts for hardware device sales. That's down from the 5% forecast in January, and IDC expects the March Black Book to show an additional downgrade to these forecasts "based on the latest indicators and survey data, and the escalating situation in other regions outside China."

RELATED: IDC: Coronavirus will drag down China's ICT market by 10% in the first quarter of 2020

IDC acknowledged that predicting the impact of the coronavirus was difficult because it's still in the early innings.  

"The situation is extremely fluid," said Stephen Minton, vice president in IDC's customer insights and analysis group, in a statement. "Our monthly data and surveys are clearly pointing in one direction, but it's still early to understand the full impact of the coronavirus crisis across all sectors of the economy. We are using scenario models to illustrate that forecasts have a wider range than usual, and the downside risks in those models seem to be increasing every day. But the duration of the crisis remains a big unknown and will go a long way in determining overall market growth for the year as a whole."

RELATED: IDC: IT spending will grow in 2020, but coronavirus causes uncertainty

Prior to the coronavirus outbreak, worldwide IT spending was originally forecast to grow by just over 5% in constant currency this year mainly due to strong PC sales in the fourth quarter of 2019 giving way to a smartphone upgrade cycle driven by 5G deployments and a recovery for service provider spending on infrastructure. In addition, continued momentum around digital transformation projects was expected to fuel strong demand for software and IT services in 2020.

Instead, IDC's February Black Book downgraded growth to 4.3% and it's likely to drop closer to 3% in March based on the latest forecast adjustments and scenarios. In a pessimistic scenario, based on the crisis extending beyond Q2 outside China, the worldwide IT market is more likely to grow by around 1%.

"The pessimistic scenario is not a worst-case scenario," said Minton. "Things are moving so quickly that we need to constantly recalibrate our assumptions and expectations, but the pessimistic scenario reflects an IT market in which weaker economic growth translates into weaker business and consumer spending across all technologies over the next few quarters. Things could get worse, but hopefully not."