Welcome to my predictions for the ITC market in 2023. It follows my self-assessment of last year’s set, which I believe would have been more accurate if Russia hadn’t decided to invade the Ukraine. The war will continue – possibly throughout 2023 – making this year just as difficult to predict; strategic planning will become even more difficult if China decides to attack Taiwan, or North strikes out at South Korea.
In 2023 we will also still be dealing with the consequences of the pandemic, which started in 2020. The supply chain problems we suffered then were replaced by strong growth in the hardware markets, which have now leveled out, while the under-immunized Chinese population spreads new serious consequences at home and abroad.
In 2023 I’m expecting a rebound in component markets – especially in disk drives, NAND and DRAM, where new higher capacities will come on stream, fuelling a growth in ITC hardware in 2024. For the time being inflation, national currency declines against the $US in EMEA and sluggish or declining GDP will make many eke out the life cycles of their installed PCs, smartphones, servers and storage systems.
The conclusion of recent COP27 climate talks in Egypt show that the world’s major polluters are still avoiding the major steps needed to prevent continuing crises. The ITC industry is capable of being part of the solution through minimizing waste and virtualizing business and social interactions; however things won’t start to get better before the world moves away from electricity generation from fossil fuels, especially coal. On a smaller scale the smelting of iron from electricity, as opposed to coke, would help direct us towards a more sustainable future.
My predictions for the coming year are:
- The world IT market grows just 1% – Asia Pacific best (+4%), the Americas alright (+2%), but EMEA declines by 2%
- Revenue growth in software and IT services outstrips that in hardware and telecoms services in 2023
- ITC spending in China continues to decline
- Cloud computing spending reaches its zenith in 2023
- ‘Hybrid cloud’ turns from a generic description to a number of tried and tested blueprints
- IoT devices outstrip PC and smartphone shipments in 2023
- Raw storage returns to growth in 2023
- IT, OT and CT are mixing like ever before, but not converging
- War unsettles the global market – affects factory locations, suppliers and alliances
- 2023 – give peace a chance!
1. The world IT market grows just 1% – Asia Pacific best (+4%), the Americas alright (+2%), but EMEA declines by 2%
We often measure the value of the world UTC market in current $US conversions for regional markets (the solid lines in my Figure above); however ‘real’ growth over the last few years has been far weaker, especially in EMEA, if we pick constant $US exchange rates (the dotted lines above). Once inflation of c. 10% in all regions is taken into account, I’m forecasting a weak year for our industry. Highlights include:
- Asia Pacific overall will grow faster (+4%) than other regions, despite a fall in Chinese ITC consumption (see later). Networking and smartphones are helping many of these countries catch up with the saturation of ITC products and services in the more mature Western markets.
- The Americas, dominated by the USA, will see slowing growth – especially as the vast climb in cloud computing reaches its zenith. I believe revenue growth in 2023 will be just 2%.
- EMEA will perform worst of the three continental markets, with ITC spending declining by 2%; bereft of manufacturing (due to high wages) and patents (mainly held by US companies) the region has little to contribute outside networking (Nokia, Ericsson) and semiconductors, as long as ARM remains semi-British. The war in the Ukraine, consequential soaring fuel prices and the on-going de-stabilization of Brexit will limit growth here.
Adding the regions together results in a spending growth rate of 1% for the world, with the total climbing from $7.1 to $7.2 trillion. This will be worse if we see war in new countries in the year.
2. Revenue growth in software and IT services outstrips that in hardware and telecoms services in 2023
The long term trends in spending on the four categories of the ITC market will continue in 2023, albeit with a continuing slump in overall growth. In particular:
- IT service will see a 2% growth in spending to $2.4 trillion. The strongest growth of its component offerings will be in IaaS (13% to $93 billion) and PaaS (14% to $157 billion). Internet service (-3% to $192 billion) and outsourcing (-2% to $305 billion) will be the only offering to decline in this category.
- Software sales will increase by 4%to $1.4 trillion. The strongest growth of its offerings will be SaaS (11% to $201 billion) and operating systems (18% to $132 billion). The two offerings where spending will decline are infrastructure software (-1% to $242 billion) and custom software (-6% to $63 billion).
- Hardware will remain level for the third year at $1.9 trillion. None of the offerings will grow in this category. The strongest declines in spending will be peripherals (02%to $156 billion), gaming consoles (-1% to $30 billion) and PCs (-1% to $326 billion).
- Telecom service spending will decline by less than the 7% in 2022, reaching $1.5 trillion. The strong 41% decline in fixed line spending to $285 billion) will be balanced against growth in all 3 other offerings; 122% in enterprise to $454 billion and wireless service up 16% to $952 billion) – both driven by private 5G – and broadband service up 15% to $188 billion.
All of these will underpin a year in which we rely even more on the Internet, while scrimping and saving on new hardware, software and services.
3. ITC spending in China continues to decline
China has a population of 1.4 billion, making it the largest country in the world. The last couple of decades have seen it make strides towards wealth, with a growing GDP based on low wages and a mastery of manufacturing – especially of consumer goods and ITC equipment. However the US government have put a break on the international growth of indigenous companies such as Huawei and ZTE.
In 2023 I expect spending on the ITC in China to decline by 1% to 3.1 billion in Yuan Renimbi, China’s currency. This will be less than in 2022 (-3%) or when measuring the market in current dollars (-6% in 2022 to $487 billion and –4% in 2023 to $468 billion. One cause of the decline is the increasing belligerence of the Chinese government, which shuns international standards and legislation partially as a reaction to the anti-Chinese stance of the US government. Spending on ITC will plummet downwards if the aggressive position of China verses Taiwan results in invasion; it would also plunge the rest of the ITC market into chaos due to the dominance of semiconductor manufacturing by companies such as TSMC and UMC.
4. Cloud computing spending reaches its zenith in 2023
For 15 years the story of the ITC market has been dominated by the creation and stellar growth of the cloud computing market. However the growth will continue to slow in 2023. In particular:
- Infrastructure as a Service spending will grow by (just) 14% to reach $157 billion). The major emphasis of customers will be to bracket these services into an overall enterprise computing architecture, which will involve major investments in cyber security.
- Platform as a Service spending will grow by (just) 13% to $93 billion. Although these services are arguably easier to assimilate than IaaS ones, enterprises will spend a lot of energy in integrating them into their overall ITC activities.
- Software as a Service spending will grow by (just) 11% to 4201 billion. There are few software companies in the world who will not offer on-line versions of their offerings for those who want to avoid installing and upgrading versions on their on premise servers.
The disaggregation of enterprise computing witnessed by the growth of cloud services has also been enabled by strong growth in infrastructure software spending. This too will see less spending than before, declining by 1% to $242 billion in the year.
5. ‘Hybrid cloud’ turns from a generic description to a number of tried and tested blueprints
Most organizations have adopted a ‘digital transformation’ strategy, which has shifted the attention of computing from a supporting technology to a leading strategy. Often this has involved modifying the internal network to attach external sources from public and private clouds (see my Figure above).
However we’ve tended to call all such combinations as ‘hybrid cloud’, irrespective of how secure, coherent or sensible the individual infrastructures are.
In 2023 we will see more moves towards defining the use of internal and external resources to produce industry- , country- and regional-level blueprints, which will bring more certainty to their usage. While international standards organizations have slowly been applying their attention to mixed environments, advanced suppliers such as Accenture and IBM are ahead of many others in providing a more sensible direction to large enterprises in financial, government, retail and manufacturing customers. The advantages of a more consistent approach will include better resilience against, and faster recovery from, cyber attacks.
6. IoT devices outstrip PC and smartphone shipments in 2023
280 million PCs, 1.5 billion smart devices (including phones, tablets and wearables) and 4 billion routers were shipped in the year to September 2022 and yet the number of Internet-enabled devices (including cars, washing machines, TVs, toasters and musical instruments) shipped has been growing massively as a proportion of all these consumer product types, with a total of shipments also in the billions.
My sixth prediction is that the number of Internet-connected IoT devices will outstrip the number of ITC devices shipped worldwide for the first time in 2023. I expect the total to reach 6.5 billion in the year – greater than the 6 billion of dedicated ITC devices.
IoT gives us much greater control over our lives and activities; however it also increases our vulnerability to cyber attacks significantly, especially as standards bodies and governments have been so slow to address the insecurity and vulnerability of IoT devices. In 2023 we will see a number of certification and labeling schemes introduced or enforced in many countries, especially in EMEA. However the USA and China are more interested in the increase in business revenues and consequential taxes than they are in protection. It will be many years before the sophisticated use of IoT devices will be free of the potential of identity theft and disruption, if ever.
7. Growth returns to raw storage in 2023
Perhaps the easiest of my predictions to make is that raw storage – stalled by the down-turn in hardware markets and products with the same capacities as 2021 – will return to growth in 2023.
I expect the combination of disk drives, NAND and DRAM chips to increase as follows:
- Shipments will grow by 32% to 3 billion
- Spending will grow by 16% to $283 billion
- Capacity will grow by 26% to 3.7 Zetabytes
- Installed Base will grow by 30 to 11 billion
These components will mostly be incorporated into ITC products and devices, although an increasing number will be added to consumer devices and factory equipment as part of the raid expansion of the IoT market.
8. IT, OT and CT are mixing like ever before, but not converging
Almost 40 years’ ago I decided to become a researcher in the IT market – a career I’ve enjoyed tremendously. However I have not specialized in either the Operational Technology (OT such as factory automation) or Communications Technology (CT); luckily the organizations I’ve worked for have employed other specialists who have mastered these subjects.
During 2022 I have expanded my research to cover CT – a process I’ve enjoyed massively, but discovered to be full of acronyms and specialist technology it has been hard to grasp. In fact I’ve established an ‘acronym buster’ for CT, logging every new term I’ve discovered. To this point the list is over 400 items and still growing. Earlier in my career I also looked into OT, which is almost equally different from the IT market.
My seventh prediction is that, despite the adoption of an almost infinite variety of solutions combining IT, CT and OT offerings, there will be no hard convergence between the three markets. Specialists will continue to speak technical language which is unintelligible to most in the other two areas. The speed at which each area has evolved, the salaries specialists are paid and the threat landscape of each is different. In large organizations the teams of technicians will need to co-operate like never before, not least because cyber threats will start to infect combined solutions. They will also have to accommodate the needs of business – a fourth area which is
Connected, but not converged, with the others.
9. War unsettles the global market – affects factory locations, suppliers and alliances
My Figure above shows an incomplete list of manufacturing locations for major ITC hardware suppliers. It illustrates the extent to which the Far East, and especially China, dominate the world market and also the multiple locations established by major players.
Unfortunately the current organization of component supply has been disrupted by the war between Russia and the Ukraine. It will become completely chaotic if China chooses to invade Taiwan, where TSMC and UMC are based.
Also unfortunate is the fact that many suppliers concentrate their attention on a very small number of virtually unique products – you need two strong suppliers of the same thing to gain the benefits of competition.
In 2023 I expect to see an expansion of the number of countries in which components are made, as well as new alliances between vendors and governments to alleviate the many shortages we continue to experience and try to pre-empt the spread of war. EMEA in general and the EU in particular are vulnerable to shortages, which will have as devastating effect on our lives here as the failure of gas and oil pipelines from Russia has been in 2022.
10. 2023 – give peace a chance!
I’m not expecting any of the conflicts in the Ukraine, Syria and Ethiopia to end in 2023. In fact it is more likely that conflict will spread, whether from civil unrest in Iran and Afghanistan or the activities of China. Nevertheless we need to find a way to modify the ITC market to make it more predictable than before, whether by continuing to use older equipment for a few years longer than before, opening new manufacturing plants in new (or more stable) countries and regions, or by adopting stronger physical and cyber security regimes.
My tenth prediction is more of a prayer. I hope that there will be a strong movement towards world peace in 2023 and greater commitments to addressing climate change. Thank you for reading my work in 2022 – and best wishes for a prosperous and peaceful 2023!