Gartner says New Zealand technology spending will be $11.8 billion in 2017. That’s up 2.7 percent from 2016. It’s also a lot higher than last year’s forward looking forecast from Gartner. The total spend is forecast to pass $12 billion in 2018.

Communications services is the top technology category in New Zealand. Customers will spend a total of NZ$4.4 billion this year.The category includes consumer fixed and mobile voice and data services, enterprise fixed and mobile voice and data services. It may be the biggest sector, but shows next to no growth.

Gartner expects software to be the star performer over the next year, with IT services also showing respectable growth. Sales of devices and data centre systems will be flat.

Australians spend more however you cut it

New Zealand’s numbers compare with a total IT spend of A$83 billion in Australia, almost eight times the amount spent here. Australia’s communications services sector is around six times the size of New Zealand’s at A$26.8 billion.

Gartner expects both New Zealand and Australia to increase spending in the next year by more than the worldwide 2.4 percent forecast.

IT Spending Forecast Q2 2017

In part the difference between Australia and New Zealand can be put down to population size. Yet there’s more to the numbers than how many people live in each country. New Zealand’s spend amounts to around NZ$2,500 per person, while Australia’s is almost A$3,500.

One possible explaination for some of the difference is that some Australian IT companies wrap New Zealand revenue into local income. And there’s a tendency on the other side of the Tasman to gold-plate projects. Yet you can’t escape from thinking Australians appear more willing to invest in technology.

New Zealand: IT Spending Forecast (Millions of NZ$)

Segment201620172018
Devices    1,659    1,734    1,724
Data Centre Systems        344        342        347
Software    1,363    1,499    1,647
IT Services    3,764    3,840    3,920
Communications Services    4,355    4,383    4,437
 
Grand Total  11,484  11,798  12,074

 

Abstract, Jackson Pollock

Gartner says NZ IT spending will reach NZ$11.4 billion in 2017. That’s up 2.3 percent on last year.

This is less than the expected 2.7 percent rise in global IT spending.

The reason for New Zealand’s underperformance is that nation’s biggest IT spending category is fixed and mobile communications services. It accounts for almost 40 percent of all NZ IT spending.

Gartner says growth in this sector is likely to be flat over the next two years.

In 2016 we spent NZ$4.36 billion on fixed and mobile communications services. Gartner’s projection puts 2017 spending at NZ$4.38 billion. That’s a rise of about 0.6 percent. The estimate for 2018 is NZ$4.43 billion.

Meanwhile spending on software will rise from NZ$1.4 billion last year to NZ$1.5 billion in 2017 and will reach almost NZ$1.7 billion in 2018.

Segment2016 YR2017 YR2018 YR
Devices    1,541    1,572    1,556
Data Center Systems        400        402        398
Software    1,421    1,541    1,674
IT Services    3,442    3,518    3,599
Communications Services    4,355    4,383    4,432
Total  11,159  11,417  11,659
Gartner – all numbers in thousands of NZ dollars

Australia’s largest sector is IT services. Gartner says software will be the fastest growing sector in 2017 for both New Zealand and Australia.

Global spending is set to total US$3.5 trillion in 2017. Gartner says the year was set to see a rebound for the industry. It originally forecast 3 percent growth. However political uncertainty means the analyst company has dialled back its optimism.

Gartner research vice president John-David Lovelock says the uncertainty means there’s a wait-and-see mood with many enterprises forestalling IT investments.

Cloud, blockchain, AI all trending

He identifies the big trends as cloud, blockchain, digital business and artificial intelligence.

The analyst expects worldwide spending on devices, PCs, tablets and phones to stay flat at US$589 billion.

Gartner says a PC replacement cycle, strong pricing and functionality will help drive growth in 2018.

We’ve seen similar optimistic projections before now. Some from Gartner. It’s hard to know where that replacement cycle will come from. Technology sales have been falling for years now. Even if it does kick-in, the industry needs more than replacements to see a fresh wave of growth.

Things are strong in the IT services market. Gartner expects the global market to grow 4.2 percent in 2017. It says this will come from investments in digital business, intelligent automation and services optimisation. The report goes on to warn buyers remain cautious.

surface book

We have seen five years of falling PC sales. They will never return to the glory days. But the PC is a long way from extinction.

Many of us still need personal computers for our work. They do things phones and tablets cannot. They do other things better than phones or tablets. Not everybody needs to do those things. And not everyone needs to do them well.

PCs are no longer centre stage. That’s one reason we don’t need to replace them as often as before. For the most part they are also better made. Another reason we spend less time upgrading them.

Five years of falling PC sales

Less need means fewer sales. The computer industry reports 2016 will show another year of declining shipments. That means five years of falling shipments and sales.

Sales may fall, but the market remains huge. It will stay big for some time yet. Last year the industry shifted close to US$175 billion of hardware. That’s a lot of money. The bulk of it goes to half-a-dozen companies. They all come away with billions in revenue, if not profit.

There are bright spots. Sales of hybrid devices that combine elements of traditional laptops and tablets are booming. IDC Australia reports convertibles — another name for hybrids — grew 91 percent year on year. New Zealand is seeing a similar interest in these models. It a small sector compared with the entire market, but enough for a renewed optimism in some quarters.

Two other PC sectors are strong.

Life at the top

High-end computers, especially laptops, continue to sell in large numbers. Apple and Microsoft show computer makers can command premium prices. The MacBook Pro and SurfaceBook models are not cheap, but sell well.

Business, media and creative types will pay more for better quality, powerful PCs. They want modern specifications, sleek designs and innovative new features. Microsoft’s latest Surface Studio fits this category. While some whinge about new MacBook Pros’ missing features, they sell in reasonable numbers.

Apple shows one way for laptop makers to succeed. It sells few computers compared with, say, HP. It isn’t among the top five PC makers by unit numbers. But Macs make Apple more than US$20 billion a year in revenue.

Moreover Apple makes a profit from computers. By some estimates it makes more profit from its small market share than some of the big guns make.

Most PC makers have seen sliding sales. Falling PC sales have not hit Apple as hard. It had one declining year in 2012, otherwise it has grown while the others decline.

Cause for optimism

Sales of high-end laptops are set to grow this year and next. The growth may be sluggish; one or two percent at best. Yet compared with the total market which is dropping at 10 percent or more, that is reason for optimism.

The other bright spot is with low-priced models. Chromebook sales are racing ahead in some parts of the world. This year they will account for 15 percent of US PC sales.

If the high-end and the low-end are growing, there’s a collapse in the middle of the market. In effect, there are now two distinct PC markets. Cheap and cheerful machines at near throw-away price or glitzy high-end models.

After five years of falling PC sales, hardware makers are learning how to cope with the disappearing middle. Until this year brands like HP and Lenovo would pump out models to fill every niche regardless of the demand. Then discount the unwanted models until stocks cleared. If you think that sounds like a recipe for losing money, you’d be right.

Today they are more selective. The big brands are more focused on selling the models with the best margins. That means moving upmarket and moving down-market, not messing with Mr Inbetween. Both HP and Lenovo have improved profits by learning which machines not to make. HP’s strategy is paying off. In the most recent quarter it saw better than expected growth of 2 percent.

It’s not much, margins are still wafer thin, but they are improving.

Abstract, Jackson Pollock

Global PC sales were down 9.6 percent year-on-year during the first quarter of 2016 according to Gartner. Total sales for the quarter were a shade under 65 million. This was the first quarter with less than 65 million units sold since 2007. In contrast, sales in the same quarter of 2013 were a little over 76 million.

Gartner’s numbers are optimistic compared to IDC which put the figure at 60.6 million units sold, down 11.5 percent on the same period a year earlier.

Both analyst companies say Lenovo remains the world largest PC maker. IDC gives it a 20.1 percent market share, Gartner puts the figure at 19.3 percent. Lenovo’s sales fell slower than the overall market.

HP down 9 percent

Number two brand HP saw sales fall 9 percent, while third-place Dell was stable. Gartner says its sales dropped 0.4 percent while IDC put the drop at 2 percent.

Asus and Apple are number four and five. Gartner has Asus a whisker ahead of Apple, IDC reverses the positions. Gartner thinks both companies managed to grow during the quarter, IDC disagrees.

The rest of the market slumped, depending on which set of numbers you prefer sales either fell 18.4 or 19.8 percent. Either way, it’s a bloodbath.

Currency a red herring

Gartner thinks currency movements can explain the decline with PCs now more expensive outside of the USA. Maybe.

However, the figures point to the fifth year in a row of falling PC sales. Sales have dropped year-on-year in each of the last 12 quarters.

The recent quarter’s decline is the worst on record. Look beyond the top brands and you have to ask how long before computer makers exit the business. There is no apparent upside, no recovery in sight.

Earlier analyst forecasts looked forward to the arrival of Windows 10 fueling fresh sales. That was over a year ago and there was no bump, no up-tick.

Keep taking the tablets

You might explain some of the drop in PC sales by the rise in tablet sales. Incidentally, I wrote this blog post on an iPad Pro — a few years ago it would be a PC task.

About 100 million tablets are purchased each year. Some will have been purchased as laptop alternatives. Yet tablet sales are also falling. And, anyway, some hybrid devices that combine PC and tablet features are counted in the PC sales numbers.

The obvious explanation is that phone sales are killing PC sales. Not only do they suck up money that might otherwise be spent on PCs, in many cases they deliver enough PC functionality for a sizable slice of the population. It turns out many people only bought PCs for mail, browsing, video calling and other simple tasks that work just fine on a phone.

Apple CEO Tim Cook has made a point of questioning why people still bother buying PCs. That’s an interesting statement given that Apple is one of the few companies to do well in PC sales in recent years. Perhaps, unlike Gartner and IDC he thinks MacBooks and iMacs don’t count as PCs. He suggests most would be better off buying an iPad.

The Korea Times reports Samsung is ditching its unprofitable desktop PC business to focus on tablets and laptops. Meanwhile Gartner reports PC shipments will drop more than 10 percent this year as customers move to tablets and smartphones.

Samsung’s move away from desktops won’t be noticed in New Zealand. It’s been years since the company sold traditional PCs in this country. Nevertheless, the move is symbolic of the way things are moving.

Gartner sees tablet sales growing 68 percent, but the phone market will only nudge up 4.3 percent.