Companies have been analyzing the move to cloud computing which put a lot of spending on IT hardware on hold. Morgan Stanley published a new financial research note this week that indicates once enterprises finish their cloud assessments, it will be open season on purchases.
This could provide double-digit earnings for the IT hardware sector in 2018.
Kathy L. Huberty with Morgan Stanley, says that “Although enterprises have been shifting software applications to the cloud, several catalysts are converging to give IT Hardware a new lease on life.”
“The last three years have not been kind to many IT Hardware companies, which some investors have deemed obsolete in the era of cloud computing. While it’s true that enterprises are shifting software applications from on-premise data centers to the cloud, there’s much more to this year’s story. We estimate that 44% of computing workloads will be done in the cloud by the end of 2021, up from 21% today. Meanwhile, every $1 of revenue growth for the largest cloud service has resulted in about $3 of revenue decline for the major legacy technology companies.However, several catalysts are converging to give IT Hardware a second life—and drive double-digit earnings growth in 2018. For this reason, our team recently gave the IT Hardware group a double upgrade, shifting our view from cautious to attractive.”
Gartner says Global IT Spending will Reach $3.7 Trillion in 2018. This is a 4.3 percent increase over 2017.
While IT Services will be up 5.3% in 2018, Gartner is projecting that Third Party Maintenance will grow by 35% by 2020.
Why is Third Party Maintenance growing faster than new hardware acquisition and general IT services?
TCO – total cost of ownership. According to Gartner, 80% of total IT costs occur after the initial purchase. TCO is defined as the total cost of using and maintaining an IT investment over time. TCO calculations will including of combination of direct costs – hardware, software, operations and administration – plus indirect costs including end-user operation and downtime.
Not so fast my friend. The average mean-time between failure for Cisco devices can be 7 to 32 years. Unless there are performance, security or reliability issues, there isn’t a reason for upgrading.
Regardless, it sounds like good time ahead for both the IT hardware manufacturers and Third Party Maintenance Industry!