Europe Will Drag on IT Spending in 2012

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Worldwide IT spending is forecast to total $3.8 trillion in 2012, a 3.7 percent increase from 2011 according to the latest outlook report released by research firm Gartner. While not much of a surprise, the growth estimate for 2012 is much lower than the 6.9 percent experienced by the industry in 2011 primarily due to the impact of Eurozone crisis and hard-disk drive shortage resulting from the flooding in Thailand. [1] Lower IT spending could impact players like Accenture (NYSE:ACN), IBM (NYSE:IBM), Microsoft (NASDAQ:MSFT), Oracle (NASDAQ:ORCL) and SAP (NYSE:SAP) while a hard drive shortage will weigh on HP (NYSE:HPQ) and Dell (NASDAQ:DELL) as well as enterprise storage vendors like EMC (NYSE:EMC), NetApp (NASDAQ:NTAP) and IBM.

The reduced spending is expected to impact all the four major technology sectors, including computing hardware, enterprise software, IT services and telecommunications equipment and services, which will witness low to mid single digit growth in the year.

Eurozone crisis to impact IT spending

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With most of the eurozone countries gearing up for a period of reduced spending, to get the ongoing  debt crisis under control, both businesses and consumers in Western Europe will likely hold back on IT spending. Gartner expects the IT spending in Western Europe will decline 0.7 percent in 2012 thus becoming the major factor for the next year’s grim forecast for the global IT industry.

We believe this will particularly hit the spending on IT services and enterprise software as they will most probably fall into discretionary category given the current state of affairs in the European market.

Shortage of hard disk supply will hurt hardware segment

Thailand has been a major hub for hard-drive manufacturing, both for finished goods and components. As a result of the floods in Thailand, the supply of hard drives will likely be reduced by 25 percent (or more) during the next six to nine months. The effects of this will continue to ripple throughout 2012 and very likely into 2013.

This will impact computing hardware businesses globally which will take a double hit in the form of lower volumes as well as increased costs. Although large PC OEMs will see fewer problems than others in the industry, no company will be wholly immune to the effects on the HDD supply chain.

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Notes:
  1. Gartner Says Worldwide IT Spending to Grow 3.7 Percent in 2012, Gartner []