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A trade war with China and a tense global economy have IT budgets tightening for Q3 2019. The impact is experienced across several areas, including capital budgets, company willingness and device buying.

We surveyed the 451 Alliance on IT spending trends; here’s our analysis of the data and key take-aways.

 
 

Overall IT Spending

 
 

Our top-line finding shows reductions in Q3 IT budgets compared to the previous quarter, with 15% of respondents saying they expect an increase and 15% saying decrease/no spending, 2-points lower than previously and the lowest reading since the 2016 presidential election.

 
 
Overall IT Spending
 
 

As the chart above shows, this reading remains firmly within the long-term range we’ve been monitoring for the last several years.

While the recent deceleration in momentum is a bit concerning, we note that seasonality is a partial factor. Another one is likely the reset following the boost from the 2017 tax cuts, which have faded into the background.

It’s worth reiterating that even when IT budget growth was negative the overall business environment remained strong.

 
 

Second Half of 2019

 
 

Looking ahead to budgets for the second half of 2019, respondents once again cite reductions. When comparing first-half to expected second-half spending, 17% of respondents see higher budgets while 17% see lower – 4-points worse than previously.

 
 
Second Half of 2019
 
 

As noted earlier, seasonality plays a role, as does the waning influence of the 2017 tax cuts. This data point will be very important next quarter when we take out first look at expectations for first half 2020.

 
 

Capital Budgets

 
 

Despite the tightening recorded in spending and budgets, overall capital budgets are holding steady. The number of respondents saying their capital budgets have been increased (9%) is unchanged compared to the previous quarter, while slightly less respondents are saying their budgets have been adjusted lower (12%). This is 1-point better than our February survey.

Q. Thinking about your company’s overall capital budget for 3rd Quarter 2019, have there been any adjustments over the past 90 days?

 
 
 
 

The slight improvement notwithstanding, this quarter’s results are down compared to the May 2018 reading. The year-over-year drop in both capital and IT budgets points to larger economic issues – such as US-China trade war and tariffs – impacting business decisions of technology buyers.

Interestingly, when we asked respondents how the current state of the global economy was affecting Q3 IT budgets, we saw upticks in the number of companies increasing (5%; up 2-points) and decreasing (9%; up 2-points) their budgets.

 
 
 
 

With nearly three-quarters of respondents (72%) reporting no change in their IT budget due to current global economic conditions, it appears that overall IT spending, for now, remains largely insulated from the negative effects of the trade war.

 
 

Willingness to Spend

 
 

Since the 2016 presidential election, one area of strength was company willingness to spend money on IT products and services. This changed in the current survey.

We picked up a significant pullback with half (50%) of respondents saying they have a green light (spending is normal) and 41% saying they have a red/yellow light (spending is downsized or stopped). At net +9, this is 10-points worse than last quarter.

 
 
Willingness to Spend
 
 

This signals that desire to spend and budgeting are becoming more aligned – a further sign that economic issues are applying pressure on IT budgets.

 
 

IT Spending by Category

 
 

Beyond tracking overall spending, it’s important to drill down and see how that money is spread across various spending categories.

Security (+19 net difference score) is overwhelmingly capturing the largest increase in planned Q3 spending. Storage (+4) and enterprise software applications (+4) are tied for a distant second.

 
 
Spending Categories
 
 

At the other end of the spectrum, PCs (-7) and servers (-4) are experiencing the largest decreases in planned spending.

Security may lead in momentum, but in overall dollar terms it represents only a fraction of hardware spending, which continues to decelerate as cloud-computing adoption broadens.

 
 

Smartphones, Tablets and PCs

 
 

Our findings in the various categories highlighted above represent trends that are impacting the most popular computing devices. All three product groups have been gradually losing momentum over the last few years, and recent data shows further slowing.

Smartphones. Planned spending on smartphones (19%) is seeing a 2-point drop compared to the previous quarter. This is the opposite of last year when we saw an increase in spending for Q3 2018.

Tablets. Planned spending on tablets (12%) is also down 2-points compared to last quarter. This decrease in planned buying coincides with a jump in the average replacement cycle length for this device type.

PCs. Similar to mobile devices, we see a 2-point drop in planned spending on laptops (34%), and a bigger drop in planned spending on desktops (16%; down 4-points). Spending on these devices reinforces the net decrease seen in overall PC category noted above.

Upgrade Cycles. As mentioned above, device upgrade cycles are among the keys factors that impact business device buying. The chart below compares the amount of time in between upgrades for leading devices.

 
 
Upgrade Cycles
 
 

Smartphones on average continue to have the shortest replacement time at around three years, while companies hold on to desktop computers for a year longer.