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Time to cut IT costs again, predicts Gartner

IT spending has increased slightly, but not enough to fuel major digital transformations, says Gartner

IT spending is set to rise slightly in 2016, with IT spending increasing in datacentres, services and software, but devices and telecommunications spending is set to fall.

According to Gartner’s latest spending forecast, spending on datacentre systems is projected to reach $175bn in 2016, a 2.1% increase from 2015. Global enterprise software spending is on pace to total $321bn, a 4.2% increase from 2015. Spending on IT services is expected to reach $921bn, a 2.1% rise from 2015.

Gartner research vice-president John-David Lovelock said the top line of 0.5% of growth in 2016 follows two years of decline, due to the strength of the US dollar.

“When we look at western Europe, its growth will be 0.2%, but there was 0.7% growth in 2015,” said Lovelock.

He expects spending in Europe will rise in 2017. Companies have continued to spend when necessary, such as replacing aging servers, but he said there was a retraction in the phones and devices markets.

The analyst firm predicted the device market (PCs, ultramobiles, mobile phones, tablets and printers) would decline 3.7% in 2016. The smartphone market is approaching global saturation, which is slowing growth, said Gartner.

The main factor limiting IT spending, according to Lovelock, is worsening economic conditions.

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When asked about Europe, he said: “There is a shift from growth to cost optimisation.” But this is not like the stagnated market in 2001, where overspending in IT led to massive cut costs and redundancies.

“No one has revenue growth to transform to a digital business. CIOs must now optimise IT and business to fund spending on digital projects,” said Lovelock. As an example, he said the savings from legacy system optimisation and enhancements can be redirected to fund digital initiatives.

It is necessary to reduce costs to become a digital business, he added. One of the approaches Gartner promotes is so-called Mode 2 development, which Lovelock said costs less than traditional, or Mode 1 IT.

Businesses then need to move away from owning assets to using services such as Software as a Service (SaaS) and infrastructure as a service (IaaS). “Instead of buying IT, businesses will buy services,” Lovelock predicted.

“Things that once had to be purchased as an asset can now be delivered as a service. Most digital service twin offerings change the spending pattern from a large upfront payment to a smaller reoccurring monthly amount. This means the same level of activity has a very different annual spend,”  he said.

Read more on Infrastructure-as-a-Service (IaaS)