Attention Sales: IT Hardware Is Slated for a Comeback

For the last three years, the exponential growth in cloud computing has hit the IT hardware companies hard. Since 2009, cloud computing investment has been growing 4.5 times the rate of IT spending, according to Forbes.

Further, Forbes predicts that from 2015 through 2020, it’ll continue to grow at six times the rate of IT spending. By the end of the year 2021, 44 percent of the computing tasks will be done in the cloud, according to Morgan Stanely.

In fact, the entry of the era of cloud computing has made some investors deem the IT hardware obsolete. That’s because enterprises have been shifting software applications to the cloud. Morgan Stanely estimates that every $1 revenue growth for the largest cloud computing service results in a $3 revenue decline for IT legacy tech companies.

IT Hardware Earnings Are Expected to Grow

The hardware, software, and services category account for 53 percent of the total spending in the IT market. SMBs account for 44 percent of the total global IT spending, according to Gartner. And while small businesses have embraced technology, there remain a few gaps to fill. Reportedly, only one of three SMBs, report spending more than $100,000 annually on IT with 40 percent acknowledging that their spending to be less than it should.

Although most businesses are shifting their application from the on-site premises to the cloud, the year 2018 looks promising for hardware companies and vendors. Research consultancy IDC reports that in 2017, the IT industry surpassed the $4.5 trillion mark and the spending may hit the $4.8 trillion target if the growth projections materialize.

On Information Technology as a whole, CompTIA projects a five percent growth. The growth may rise to seven percent if everything falls into place. Improved consumer demand and the increased uptake of the products and services explain the trend. Revenue is expected to grow as well.

Enterprises Are Combining Cloud Computing with On-Premise Computing

Undoubtedly, companies have plans of moving a large share of their workloads to the clouds. However, they’re not ready to let go of the on-the-premise computing. Most of the enterprises are opting for the hybrid IT model in which the applications move between the public cloud and the on-site data centers.

CompTIA’s research reveals that most of the enterprises have only managed the first two stages. They are learning about systems migrations and how to integrate with the existing structures & cloud security. With the current progress, the business will move into the next stages gradually.

Catalysts for Increased Spending IT Hardware

Surprising as it may sound, the move to the cloud computing is not the major or the sole hindrance to progress. Instead, the decision-making process around cloud computing is to blame. Enterprises have been grappling with the idea of how, when and how much of their computing workload they should migrate to the cloud.

Companies have now gained more control over their plans and are comfortable making the necessary adjustments to IT hardware. A proprietary AlphaWise survey involving 100 ICOs revealed faster IT budget planning growth compared to three months before the study. 

Besides, the recent changes to the U.S tax law have accelerated the IT hardware spending. Companies can repatriate cash and have discovered the advantages of accelerated depreciation, encouraging them to increase their expenditure.

What’s more, the IT hardware industry looks promising thanks to the weaker U.S dollar, reducing memory prices and the improving revenue scale. That translates to an average 60 point gross margin expansion, marking the most significant improvement since the original recovery from recession.

The IT hardware industry is diverse and includes a wide variety of products from headsets, computers, ATM Machines to data storage. People investing in the industry tend to favor stocks priced for zero or whose growth is on a downward trend in the hope that these companies will perform better later.

And yes, there lies potential for these multiple to move higher. Enterprise stocks with declining growth traded roughly 10 times the 2018 earnings. Compare those with the stocks priced for modest growth that traded 14 times. Apparently, the margin is minimal and will soon close as more and more investors rethink the IT hardware.

This is an era of industrial innovation, and there’s more to experience. Impressive advances such as automation, artificial intelligence (AI) and the Internet of Things (IoT) will continue to fuel the demand for IT hardware. That will mean more spending on IT hardware now and in the future.

In Conclusion

For the last few years, cloud computing allowing enterprises to migrate their software applications to the cloud has threatened the IT hardware industry. Revenue generated from the sale of IT hardware has been plummeting to the extent that some investors thought the IT hardware had become obsolete. But the market statistics in the year 2018 tell a different story – that the IT hardware market is still alive. Investors have their hopes restored as the revenue continues grows. Besides, the current advances in technology including AI, automation, and IoT will continue to increase the demand for IT hardware.

IT Xchange provides PC and data center technology to VARs and system integrators around the world. Contact us to learn more.