Gartner: IT spending is "recession proof"
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Welcome to Mostly Cloudy! Today: why Gartner thinks we’ve already seen the bottom of the enterprise IT doldrums, Microsoft finds a way to pay for its AI spending binge, and why data centers might not be the future of residential heating strategies after all.
Photo: Alex Kotliarskyi on Unsplash
Light at the end of the tunnel?
It’s been a rough couple of months for enterprise tech companies coming to grips with the reality that the pandemic-fueled spending booms of 2020 and 2021 were just a short-term mirage. An industry built around more than a decade of staggering revenue growth is now sorting through how to manage itself for a new period of modest but steady demand for its services.
But according to Gartner, worldwide spending on core enterprise tech — data center systems, software and IT services — were the only sectors in IT that grew at all during 2022, and overall spending fell 0.2%. Business spending on computers plunged after anybody who needed a new PC to work from home upgraded during the early days of the pandemic, but spending on enterprise software grew 7.1% to $783 billion in 2022.
And while the list of off-base Gartner projections over the years is too long to summarize here (a year ago this month, Gartner predicted 2022 IT spending would grow 5.1%) it expects spending on software and IT services to accelerate in 2023.
“A turbulent economy has changed the context of business decisions and can cause CIOs to become more hesitant, delay decisions or reorder priorities,” said Gartner’s John-David Lovelock in a press release. “We’ve seen this in action with the reshuffling taking place among some B2B companies, especially those that overinvested in growth. However, IT budgets are not driving these shifts, and IT spending remains recession-proof.”
Those words might provide a small degree of comfort to the tens of thousands of enterprise tech workers laid off over the past few months; while their former employers were too aggressive when planning for the future, their future employers are talking to customers who still believe they have to allocate budget dollars to modernizing outdated information technology stacks at a time when they are being asked to triple-justify ever dollar spent.
Still lingering, however, are concerns that the continued slowdown in consumer spending will eventually impact the enterprise market. We’ll get a better sense of how that played out in the fourth quarter as tech companies report earnings over the next two weeks.
A generation of enterprise tech companies born in the aftermath of the 2008-9 Great Recession has never really been tested by a downturn. While there were bumps in the road, spending on cloud computing services outpaced nearly every other tech category as businesses around the world shifted their operations to a new model.
Gartner’s data suggests that downturn might not be as bad as some had feared last fall, when preparations began for the cost-cutting that has dominated the last few weeks of enterprise tech. But disciplined buyers are actually a good thing for this sector in the long run, separating vendors that can deliver real value from those just along for the ride.
Microsoft’s memorable month
Microsoft managed to experience all sides of life as a tech company of a certain age in January, lauded as a visionary pioneer and weighed down by legacy baggage in the span of just a couple of weeks.
The company announced Wednesday that it would be laying off 10,000 people, around 5% of its massive workforce, citing a need to “align our cost structure with our revenue and where we see customer demand.” That news comes just days after it revealed plans to build new Azure services around its hot new toy, OpenAI, which has generated a minor frenzy over the last few months.
Like an awful lot of enterprise tech companies, Microsoft hired a ton of people over the last couple of years in hopes of capturing a larger share of what it (and others) believed was a new, permanent level of IT spending. While that hasn’t come to pass, a more sober market combined with its insistence that AI technology like ChatGPT is the future of, well, everything, sets up a high-stakes debate over the next couple of years.
Can cloud services powered by OpenAI’s technology really deliver enterprise value? Microsoft will be in an excellent position if they do, and preparing a similar restructuring in two years if they don’t.
Around the enterprise
IBM was sued (again) by investors who claim it reallocated revenue from mainframe sales to make it look like other, newer sectors of its business appeared to be growing faster than they actually were.
Rubrik will be ready to take its data-protection business public as soon as the market recovers, after it recently crossed $500 million in annual recurring revenue, CEO Bipul Sinha told CRN.
Thanks for reading — see you later this week!