Strong dollar may shift server upgrades off-premise

The strong US dollar will influence how CIOs spend their 2015 IT budgets. Server price hikes may drive spending to the cloud

The strong US dollar will influence how CIOs spend their 2015 IT budgets, and server price hikes may drive spending to the cloud.

According to Gartner, IT budgets have been affected by the strong dollar, which has resulted in the IT market contracting by 1.3%.

The contraction represents a fall of three percentage points from last year, when the market grew by 2.3%.

John-David Lovelock, research vice-president at Gartner, said: "Every product or service that has a US dollar-based component must have those costs covered at the lower exchange rate."

Gartner research vice-president Richard Gordon expects IT manufacturers to combat the strong dollar by raising prices. "Even though, in terms of constant currency, there has been 3% growth in IT spending, the bad news is that because of the US dollar strength, hardware prices are rising," he said.

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The analyst company has revised down its estimates for device spending in 2015, partly because of a slowdown in PC purchases in Western Europe, Russia and Japan, countries where local currency had devalued against the dollar, it said. But the mobile phone market was not affected as much by the currency shifts, Gartner added.

Gartner expects datacentre system spending to hit $142bn in 2015, an increase of 0.4% from 2014. 

External controller-based storage, enterprise network equipment and servers have all been affected by the depreciation of some local currencies against the US dollar, but the server segment has seen the biggest impact because of the greater pricing pressure on server suppliers resulting from their lower margins, Gartner noted.

From a datacentre perspective, Gordon said that while growth in equipment has traditionally been flat, in the current forecast he expects IT buyers to pay 10-20% more for servers because components are priced in US dollars and many suppliers are US-based.

Worldwide IT spending forecast (billions of US dollars)

 

2014 spending 2015 spending 2015 growth
Devices 693 685 -1.2%
Datacentre systems 142 142 0.4%
Enterprise software 313 320 2.3%
IT services 948 942 -0.7%
Telecom services 1,614 1,572 -2.6%
Overall IT 3,710 3,662 -1.3%
Source: Gartner

Gordon estimated that 80% of the price of a datacentre server arises from dollar-based pricing of components and labour. This means that for server hardware sold in Europe, a reseller would have to raise its price. 

"The cost structure gets wiped out, so the euro price has to increase," he said. "Buyers will either delay purchases or buy lower-priced machines."

CIOs may get around the cost rise by making greater use of virtualisation or extending the hardware lifecycle of their servers by deferring purchase. Alternatively, they could consider other, cheaper server manufacturers, particularly in the commodity server market.

The cloud also becomes more attractive as a way to reduce datacentre costs, Gordon added: "The strong dollar will accelerate the shift to off-premise [server] provision in Europe. CIOs could potentially move to the cloud."

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