Global Tech Market Slows In 2012

With two thirds of 2012 completed, it has become clear that the global tech market is not going to grow as fast this year as we had expected in January.  Back then, we predicted that business and government purchases of information technology would grow by 5.4% in 2012 when measured in US dollars.  In our latest forecast (see September 10, 2012, Global Tech Market Outlook 2012 To 2013: Economic Weakness Will Slow, But Not, Stop Growth), we now expect growth of 1.3%.  Much of this slowdown is due to greater-than-expected strength in the US dollar against other major currencies.  Measured in local currencies to eliminate currency fluctuations, we project 2012 growth will be better at 3.6%.  Still, this too is lower than our January prediction of 5.3%, which is the result of slower economic growth in the US, Europe, China, and India.

I want to point out that, apart from the currency effects, the slowdown is concentrated in one geography  – Europe – and one tech product category – communications equipment.  In local currency terms, the tech markets of the US and Asia Pacific will grow by 4% to 5%, while emerging markets in Latin America and Eastern Europe, Middle East, and Africa will expand by over 8%.  The weak spot will be Western and Central Europe, where the tech market will shrink by 2.5%.  On a similar basis, software, IT consulting and systems integration services, and IT outsourcing will grow by 4% to5% or more, and computer equipment by almost 3%.  But communications equipment purchases will decline by almost 1%.

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The European Tech Market Will Grow By 1.2% In 2012 And 3.1% In 2013 – If The Euro Does Not Fall Apart

Making a tech market forecast always runs the risk of being overtaken by subsequent events.  This risk is particularly acute in Europe in June 2012, when the whole euro project hangs on the brink of potential failure.  Yet with Forrester's European CIO Forum conference occurring this week in Paris, we had to make a call on the outlook for the European tech market, rather than wait until the outcome becomes a clear. 

So, here is my assumption: the European Union and the European Central Bank will patch together a set of policies that will keep Greece in the euro, provide financing to keep Ireland, Italy, Portugal, and Spain functioning as economic reforms take hold, and offer enough stimulus to prevent something worse than the current, mild recession.  As such, in our European tech market report published today (European Information And Communications Technology Market 2012 To 2013 -- Spending Growth Comes To A Halt As Europe Slides Into Recession), Forrester is predicting that purchases of information and communications technologies (ICT) by European business and governments will grow by a feeble but still positive 1.2% in 2012 in euros, and a weak but slightly better growth of 3.1%.  Let us hope that the alternative of a euro break up, a subsequent deep recession, and a collapse of tech buying similar to that in 2009 does not make this one of the shortest lived predictions we have made.

The details of our European tech market outlook are as follows:

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Dark Clouds On The Tech Horizon Redux: Europe Drops, China And India Slow, US And Canada Limp Along

Haven't we seen this show before?  Like last year?  Once again, Europe wrestles with and is again losing against its debt crisis.  Once again, after some promising growth in late 2011, the US economy is showing signs of losing steam.  Once again, China and India are flashing distress signals.  And once again, John Boehner and the Congressional Republicans are threatening to refuse to raise the US debt ceiling unless US Federal spending is cut sharply. 

Last year, the mid-year economic troubles did take their toll on tech purchases in the third and four quarters of 2011, but a last-minute resolution to the US debt ceiling issue, the European Central Bank's aggressive lending to banks so they could buy Italian and Spanish government debt, and some strength in US consumer spending, Germany's surprisingly strong growth, and continued growth in China revived global economic growth in Q4 2011 and into Q1 2012.  Much depends on whether this pattern of slump and revival will recur again in 2012.   My bet  is that we will in fact see the same pattern. 

So, let's look at the economic evidence, and then the tech market evidence. 

  • US economy slows but continues to grow.  In the US, the US Bureau of Economic Analysis on May 31 revised down Q1 2o12 real GDP growth to 1.9% from 2.1% in the preliminary report, and on June 1 the US Bureau of Labor Statistics reported that a disappointing 69,000 increase in payroll employment in May, the second month of sub-100,000 job growth.  On a more positive note, US retailers and auto makers reported good sales growth in May, while gas prices at the pump continued to fall from peaks earlier.   My take is that we will see real GDP growth in the 1.5% to 2% range in the remainder of 2012, down from my earlier assumption of 2% to 2.5% growth. 
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SAP Buys Ariba – Huh?

The big news in the ePurchasing software market yesterday was SAP’s acquisition of Ariba. This blockbuster deal will extend SAP’s position as the largest software vendor in the ePurchasing market. It also brings into the SAP fold one of the most innovative companies in this market – a company that has a fair claim to having begun the whole market in the late 1990s.

Still, as my title suggests, I’m not convinced that this acquisition makes strategic sense. I think there’s a real risk that this turns out to be a deal where one plus one equals 1.75, not two, let alone a multiple of two. Reason one: the tremendous duplication of products between the two firms, and thus the problems of product rationalization and internal competition. Reason two: the Ariba Network, which is the main rationale for the acquisition, is based on an idiosyncratic pricing model that in my view is unsustainable at current rates and thus will not generate the kinds of revenues that SAP is expecting.

Let me first state the case for why this could be a good deal:

  • SAP has a goal of significantly increasing the portion of its revenues that come from SaaS subscriptions, so adding a projected $342 million in subscriptions revenues in 2012 (on an annual basis – SAP’s share for the year will be about half that) helps SAP reach its target of $2 billion in SaaS revenues.
  • Ariba has correctly recognized the economic value in operating a supplier network that stands between corporate buyers and suppliers and facilitates their transactions. SAP’s acquisition of Ariba now gives it control of and revenues from the largest of these supplier networks.
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Q1 2012 Data Shows Economic And Tech Market Softness At Start Of The Year

While I am still relatively bullish on the 2012 tech market outlook for the US (see our April 2, 2012, "US Tech Market Outlook For 2012 To 2013" report), I have to say that the data we got on the US economy and on the US tech market was a bit softer than I expected. US real GDP growth came in at 2.2%, a bit lower than my expectation of 2.5%. On the positive side, consumer spending rose by 2.9% in real terms, and residential construction continued to improve. On the negative side, business investment in structures was weak, and government spending fell at both the federal and state and local levels.  More to the point, business investment in computer equipment and communications equipment fell from Q4 2011 levels, though computer equipment investment still was almost 8% higher than levels a year ago. Software investment, though, was up strongly — by 8.2% at an annualized rate from Q4 2011 and by 8.4% from Q1 2011. 

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Smart Computing, Cloud Computing, And Mobility Will Boost US IT Budget Spending In 2012

A week from tomorrow, I will be presenting a keynote on Smart Computing at Forrester's EA Forum in Las Vegas and later the same day a presentation on US IT spending with my colleague Chris Mines to Forrester's CIO Forum. The common theme in both presentations is that new technologies like Smart Computing, cloud computing, and mobility will drive companies to increase their tech spending and investment in 2012 and 2013. 

The Smart Computing keynote presentation will draw on research from my report on "Smart Computing Connects CIOs With The Business," in which I discuss the ways in which sensors, RFID, M2M, advanced analytics, mobile devices, and collaboration platforms and applications are allowing CIOs to address previously unaddressed business problems, using various combinations of these technologies that will vary by industry. I will focus on specific industry examples in trucking, healthcare, and health insurance. 

The US Tech Market Outlook presentation will include Smart Computing along with cloud computing, mobility, and IT consumerization as technologies that will cause US tech budgets to rise by over 7% in both 2012 and 2013 — well above the 4% to 5% growth in nominal GDP that we expect. Most of the numbers we will share will be those from our most recent US tech market report: "US Tech Market Outlook For 2012 To 2013 -- Improving Economic Prospects Create Upside Potential." However, Chris and I will also provide the very latest tech market data from government and vendor reports. 

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US Tech Market Outlook Improves For 2012 And 2013

The US economy continues to show improvement – for example, today’s news that new jobless claims were near a four-year low. As the economy outlook has improved, so, too, have prospects for the US tech market. In our updated Forrester forecast for US tech purchases, "US Tech Market Outlook For 2012 To 2013: Improving Economic Prospects Create Upside Potential," we now project growth of 7.5% in 2012 and 8.3% in 2013 for business and government purchases of information technology goods and services (without telecom services). Including telecom services, business and government spending on information and communications technology (ICT) will increase by 7.1% in 2012 and 7.4% in 2013. 

The lead tech growth category will shift from computer equipment in 2011 to software in 2012 and 2013, with and IT consulting and systems integration services playing a strong supporting role. Following strong growth of 9.6% in 2011, computer equipment purchases will slow to 4.5% in 2012, as the lingering effects of Thailand's 2011 floods hurt parts supply in the first half and the prospect of Windows 8 dampens Wintel PC sales until the fall. Apple Macs and iPad tablets will post strong growth in the corporate market, though, and server and storage should grow in the mid-single digits. 

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Oracle And Accenture Earnings Reports Point To Good Start To Tech Market Sales In 2012

On March 20, 2012, Oracle released its financial results for the quarter ending February 28, 2012, and Accenture did the same on March 22, 2012. Both had generally positive results, but with different implications for the software, hardware, and services markets of which they are a part. In short, we think the software and computer equipment market will do better in Q1 2012 than Oracle’s results suggest, while the IT services market will not do as well as Accenture did.

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Q4 2011 Financial Releases From Leading Tech Vendors Are Generally Positive

As I mentioned in my blog on January 10, 2012, on “The Ten Potential Developments That Could Shape The Tech Market In 2012,” I was watching closely last week and this week to see what the Q4 2011 financial results of IBM, Microsoft, EMC, SAP, and others were saying about the state of tech demand coming into 2012. Overall, they were about what I expected, which is to say, slower growth than in earlier quarters in 2011 but still positive growth. As such, they countered some though not all of the negative picture presented by Oracle's weak results in its quarter ending November 30, 2011 (see December 21, 2011, "Oracle Delivers A Lump Of Coal To The Tech Market, But It's Too Soon To Call It A Harbinger Of A Tech Downturn").

Here are my key takeaways:

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The Ten Potential Developments That Could Shape The Tech Market In 2012

At the end of December 2011, I wrote about the top ten tech market events of 2011. Last Friday, we published our global tech market forecasts for 2012 and 2013 (see January 6, 2012, “Global Tech Market Outlook For 2012 And 2013 — Eight Themes Will Shape Vendors' Prospects Over The Next Two Years”) . With that report now live, I would like to share the top ten things that I will be monitoring in 2012 because of their potential impacts on how the tech market will perform in 2012. Some of these things are macroeconomic developments that could hurt or help tech market demand. Others are supply-side or vendor-related events or trends that will define winners and losers in whatever tech demand does emerge. As with my top ten 2011 tech market events, these are counted down in reverse order of importance:

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