2002 Worst Year in the History of IT – IDC

In a teleconference to its global clients today, IDC showed that the worldwide IT industry suffered its largest decline ever in 2002, with a growth rate of negative 2.3%. However, IDC expects the $875 billion dollar IT industry to recover from this low point with a 2003 growth rate of more than 5%.

“Overall, the IT industry has contracted by roughly 3% over the past two years,” said John Gantz, chief research officer at IDC. “This is in sharp contrast to the average annual growth rate of 12% enjoyed by the industry over the past 20 years. Looking forward to 2003, we expect to see spending on IT and communications resume, driving a worldwide growth rate of 5.8% for the industry.”

Major contributors to this year’s decline include a 9.3% reduction in the worldwide systems market, comprised of PCs, servers, and workstations. Meanwhile, the worldwide storage market shrank by 10.6% in 2002 and is not expected to recover to its 2001 size until after 2006. The worldwide network equipment market experienced a 7.6% decline as sales to telecom service providers dropped sharply. And the services market, which today represents over one-third of total worldwide IT revenues, also underwent a dramatic decline as the average contract value fell to a three year low.

Although IDC expects IT spending to resume growth in 2003, it cautioned against unrealistic expectations for the industry. Software spending will remain weak while price competition will inhibit revenue growth in the hardware sector. Services growth will be similarly restricted by smaller projects. Beyond 2003, IDC expects growth rates to improve for several years followed by slower growth later in the decade.

IDC also emphasized that significant changes in the economic or geopolitical environment, such as a prolonged war in Iraq or another plunge in the stock market, could result in lower growth rates for IT spending. Because of the possibility that these more negative external conditions might be realized, IDC produced for the first time an alternate “downside” forecast. Under these more negative conditions, IDC believes worldwide IT spending growth next year would be closer to 2%, with spending in future years approximating real GDP growth.

Using its more favorable assumptions, IDC expects IT spending in the U.S. to grow 4.4% in 2003, led by renewed demand for servers, security, and network equipment. Storage and software are expected to enjoy more robust growth starting in 2005, while PC revenues will resume their decline after 2004. Although Europe is not expected to match economic growth in the U.S. over the next several years, IT spending will grow 5.4% next year, followed several more years of solid gains. IT spending in Japan will mirror the U.S. while the rest of Asia/Pacific will experience more substantial gains through the forecast period. After a very difficult 2002, Latin America will enjoy 8.7% growth next year and double digit growth through 2006.

“Although the industry as a whole won’t return to the kind of growth enjoyed before the downturn, there will be a number of bright spots over the next several years,” added Stephen Minton, director of worldwide IT markets and strategies. “Innovation and value will be important drivers that lead the industry back to health.”

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