COVID-19 causing businesses to pause or delay IT projects, crimping service segment
First, here’s the good news from IDC: IT services grew a whopping 5% in 2019 (2.4% when adjusted for nominal dollar value) as businesses invested in IT projects that required third-party support.
The bad news: COVID-19 will crimp IT service spending in 2020 and beyond.
The Lowdown: According to IDC, IT services grew at an accelerated clip in 2019, concluding three years of consecutive growth (4% in 2017, 4.2% in 2018, and 5% in 2019). However, the economic fallout of the COVID-19 pandemic is causing businesses to pause or cancel discretionary IT products. The result: a projected 1.1% decline in IT services in 2020 and a return to modest growth of 1% in 2021. IDC says the pandemic will stunt service growth for several years.
The Details: The disruption to IT services varies around the world. The United States and Canada will see a modest decline of .2% this year, down from 5.2% growth in 2019. Managed services will shrink .7% and service support will remain flat.
In the vast EMEA region, IT service spending will fall 4.3% and won’t not return to positive growth until 2022, IDC reported. However, the analyst firm says individual countries with stronger economies will experience faster recoveries.
The Asia-Pacific region, which hosts some of the most robust and growing economies in the world, will see IT services remain in positive territory. The forecast is for 1.9% growth in 2020, but that’s down from the 5.5% growth in 2019.
The Impact: For service vendors and solution providers, the IDC forecast isn’t good. Compounded with declining spending on IT products and supply-chain disruptions causing non-service sales to fall, the decline in IT service spending — even if slight — will cut into solution provider revenue and profitability. The average solution provider earns most of its profit from professional and managed services.
Background: While the IDC forecast is down, solution provider confidence remains strong. According to a recent study by The 2112 Group, publisher of Channelnomics, the majority of solution providers expect to make or exceed their original 2020 revenue goals. The full report “Report: Partners Confident Despite COVID-19 Damage,” is available for download.
The Buzz: “The COVID-19 pandemic is a demand shock on the services market worldwide, but it will present different challenges, as well as opportunities, to different regions, industries, services offerings, and service providers,” said Lisa Nagamine, research manager with IDC’s Worldwide Semiannual Services Tracker.”