2009 was a miserable year for tech vendors, especially for sellers of capital equipment like PCs, servers, routers, and licensed software, and for systems integrators who helped implement that software. 2010 will be a much better year, especially for these very same vendors. We’re not talking boom yet, so we are not predicting double-digit growth rates across the tech market (though some categories will see those kinds of growth). But, as our latest tech market report shows (http://www.forrester.com/rb/Research/us_and_global_it_market_outlook_q4/q/id/53384/t/2), we do think there will be a solid tech recovery in 2010, with growth rates in the high single digits.
Given that other IT advisory firms are predicting that tech markets will see growth of 3% to 4% in 2010, why are we so (relatively) bullish with our predictions of 6.6% growth in the US tech market, and 8.2% growth in the global tech market (when measured in US dollars)? Three reasons:
- A modest but sustained economic recovery will take place in the US and the major industrial countries, with stronger growth in China and India. The developed economies of the US, Canada, Japan, and Europe are emerging from the 2008-2009 recession, but with enough lingering problems that real GDP growth in most of these countries will be just 1.5% to 3%, and nominal GDP growth (thanks to low inflation) of 2% to 4% in 2010. China and India were able to avoid the worst of the downturn (Brazil, Russia, and many other emerging markets were not as fortunate). Based on the experiences of the past few years in which the tech market has generally grown at about the same rate as nominal GDP, a cautious vendor strategist would expect to see the tech market growth by 3% to 4% as well in 2010. But we see that as the floor, not the actual rate.
- A weaker dollar helps global growth measured in US dollars. In 2009, the stronger dollar that resulted from the financial crisis and the flight of capital to super-safe US treasuries pushed dollar-denominated growth rates well below the declines in local currency terms. For US vendors in particular, this was a double-dose of pain. But the US dollar in Q2 2009 began to weaken against the Euro, the Canadian and Australian dollars, and even against the British pound and Japanese yen (though not against China’s currency), and is now below year-ago levels. That means in 2010 that US vendors will be able to buy more dollars when they convert their Asian and European revenues back into dollars, making dollar-denominated growth 3 percentage points or more better than currency-adjusted growth rates.
- A new cycle of tech innovation and growth – which we call Smart Computing – is already underway, and will drive the tech market to grow twice as fast as the economy. Starting in the US and in the other advanced economies of the Tech Twelve (in addition to the US, Australia, Canada, Denmark, Finland, Israel, the Netherlands, New Zealand, Singapore, Sweden, Switzerland, and the UK), businesses and governments are starting to make big investments in leading edge technologies of awareness, analytics, and advanced applications, as well as in new foundational technologies of service-oriented architecture, server and storage virtualization and cloud computing, and unified communications. Demand for these technologies was already driving above-average tech market growth in the US in late 2007 and early 2008, before the financial crisis effectively froze all forms of capital investment. As financial markets recover and the freeze on capital investment thaws, we expect that deferred demand will come back in 2010, especially in the second half of the year.
Here are some other predictions for the 2010 tech market:
- Adjusted for currency changes, the US will have the strongest growth in 2010. With the dollar slipping most against the Euro, European IT market growth measured in US dollars will look strong at 11%. But in local currencies, Europe will lag, with less than 4% growth. Thanks to China and India, Asia/Pacific will also post good growth of 6.2% in 2010, overcoming softness in Japan and Korea.
- Surveys of CIOs will slow little or no planned IT budget growth, but actual spending will be much stronger. CIO buying sentiment and spending plans are lagging indicators – few CIOs want to enter 2010 with a big IT budget increase when the economic and business outlook is so uncertain. But as the recovery proves real, CIOs will get approval from CEOs to spend above their planned “no-increase” budget to support the better-than-expected business growth.
- The large enterprise market will do better than the SMB market in 2010, at least in the US. For large corporations, the financial crisis is mostly over – they can tap the corporate bond, commercial paper, and equity markets as they did before. But SMBs depend on banks for financing, and banks are still making it hard to borrow. So, CIOs at large enterprises will be the first ones to step up their tech purchases, with SMB buyers coming along later.
- Mature tech categories like PCs, storage and ERP and CRM software licenses will show strong growth in 2010, because they were so beaten down in 2009. Vendor revenues for products like these dropped by 20% to 30% in the first half of 2009, as scared companies slashed capital investment to conserve cash. But demand was delayed, not cancelled. So, expect a bounceback in 2010, with double-digit growth rates. Still, the 2010 recovery will leave purchase levels for many of these product categories below those in 2008 prior to the financial crisis.
- Strongest sustained demand beyond 2010 will be for smart phones and tablets, embedded computer devices (like smart utility meters), analytical software, and vertical industry solutions. While the business-section headlines in 2010 will talk about strong recoveries in PCs and ERP software, the quiet story will be the performance of vendors who provide next-generation technologies. These will be the real engines of growth for the next six-to-seven years. Some existing large vendors – IBM, Cisco, maybe Oracle, perhaps Microsoft and SAP – will enjoy great success in creating and selling these next-generation technologies. But new entrants such as GE or Siemens will also make a mark. And some smaller vendors will prove more nimble and get to these opportunities before their slow-moving larger competitors will do so.