Coronavirus-Led Slowdown to Hurt Corporate IT Spending - IDC

The International Data Corporation (IDC) expects the coronavirus-driven slowdown to significantly hurt corporate IT spending this year. On Mar 11, the technology data and advisory services provider cut its IT spending growth forecast for 2020.

IDC’s February Black Book now predicts worldwide IT spending to increase 4.3% in 2020, compared with its original forecast of 5.1% growth. The market research firm also stated that the growth predictions may be further downgraded to 3% in March based on the latest scenario.

In January, IDC had projected that strong personal computer (PC) and smartphone sales would boost worldwide IT spending in 2020. It had also expected continued digital transformation by corporates and said that increased 5G deployment would ensure strong demand for software and IT services.

Situation to Worsen if Coronavirus Crisis Extends Beyond Q2

IDC predicts that corporates may further cut or postpone their non-essential technology investment plans if the coronavirus crisis extends beyond the second quarter outside China. In such a scenario, corporate spending growth could be as low as 1%.

Stephen Minton, vice president of IDC's Customer Insights & Analysis group said "The pessimistic scenario is not a worst-case scenario." He further stated, "Things are moving so quickly that we need to constantly recalibrate our assumptions and expectations, but the pessimistic scenario reflects an IT market in which weaker economic growth translates into weaker business and consumer spending across all technologies over the next few quarters. Things could get worse, but hopefully not."

COVID-19 has now been declared a pandemic. As of today morning, the number of confirmed cases is 125,000 across 124 countries, while more than 4,500 people have lost their lives.

Tech Companies Expect Severe Negative Impact

U.S. technology stocks have been hit hard due to the coronavirus outbreak in China. The country is a major market as well as supplier of tech products including semiconductor components. A number of tech companies including Apple AAPL, HP HPQ, and Microsoft MSFT have already warned investors that the novel virus will negatively impact their businesses.

In mid-February, Apple stated that it might not be able to meet its quarterly revenue expectations issued on Jan 28, 2020. The company revealed that the virus has impacted its worldwide iPhone supply and affected demand in China.

Apple’s key suppliers, ON Semiconductor ON and Skyworks Solutions SWKS have also lowered their financial outlook. ON cited soft order trend in China as the main reason behind the outlook cut. Skyworks sees weak demand environment for its products due to supply chain disruptions.

Last month, the world’s leading PC maker, HP said that coronavirus will adversely impact its top line, bottom line and free cash flow performances in second-quarter fiscal 2020. Another tech giant, Microsoft (MSFT) also warned about a possible hit due to supply chain disruption in the PC market.

Apple, ON, Skyworks, Microsoft, and HP have declined 15.2%, 30.3%, 26.7%, 16.3%, and 12.8%, respectively, in the last one month. Moreover, the Technology Select Sector SPDR Fund XLK, which tracks the performance of U.S. tech stocks, has declined by about 17.7% over the last month.

Though the impact of coronavirus is believed to be slowing down in China, it is now spreading across other parts of the world, which could have a disastrous impact on global technology supply chain.

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