State of the Market Q2 2018: ICT Spending Review and

Outlook
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Economic Overview
 Escalation of trade war/tariffs is driving downside risks despite relatively stable economic growth
and performance in 1H18

 USA economy has maintained momentum following tax cuts and expansionary policy, but tit-for-
tat legislation and general slowdown in trade could begin to drag on activity in 2H18

 China’s economic targets in doubt as a result of trade war; any slowdown in exports to China or
US could drag on other regions including AP, EMEA and Latin America, especially export-oriented
economies like Japan and Germany

 Some Q1 2018 data lower than expected (e.g. Europe) but this is likely to be short-term as
fundamentals remain sound

 Brexit still casting uncertainty over Europe; likelihood of “no deal” scenario has increased, which
could be disruptive and drag on growth across WE

 Oil prices remain relatively high compared to recent years, which could drag on consumer and
business confidence if other growth drivers recede; cheap oil was a significant factor during the
economic recovery
© IDC 3
Real GDP Growth (%)

2017 2018 2019

5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
US Canada WE AP LA CEE MEA World

Source: EIU August 2018

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Tariffs/Trade War Escalation

© IDC 5
Tariffs/Trade War Escalation
 Baseline forecasts assume limited direct impact of tariffs on some product categories

 Downside scenario forecast(s) in the works for publication in September

 IDC China already published impact statement for China ICT market

 Scenario model factors in historical correlations for IT/GDP, direct impact of tariffs on
ASPs and secondary impact on customer segments

 So far, the macro impact looks likely to have the greatest impact on IT spending; direct
impact of tariffs on ASPs/units may be moderate, due to supply chain maneuvers,
strong underlying demand etc.

© IDC 6
Inflation (% consumer prices increase)
2017 2018 2019
14
12
10
8
6
4
2
0

Source: EIU August 2018

7
Unemployment (% recorded)
2017 2018 2019 2020
14
12
10
8
6
4
2
0

Source: EIU August 2018

8
Slowdown in Mature Economies by 2020
Real GDP Annual Growth (%)

5%

3%

1%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
-2%

-4%

-6%

USA Canada WE Japan

Source: Economist Intelligence Unit, August 2018

9
Corporate Profits Forecast (% growth)
7

4 US
UK
3
Japan
2
Germany
1 Canada

0
2018 2019 2020 2021 2022
-1

-2
10
Emerging Economies Have Stabilized
Real GDP Annual Growth (%)
15%

10%

5%

0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

-5%

-10%

China India Russia Brazil

Source: Economist Intelligence Unit, August 2018

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Reference: ICT Spending Groups
 IT Spending is total spending on enterprise hardware (server/storage and network), devices
(personal computing devices, peripherals, phones), software, IT services

 Telecom Spending is total spending on telecom equipment (service provider equipment

including wireless infrastructure), telecom services (fixed and mobile, voice and data)

 Other Spending is everything else, including business services in the Worldwide Black
Book (Standard Edition) and new Innovation Accelerator technologies in Worldwide Black
Book: 3rd Platform Edition (AR/VR headsets, IoT sensors/modules, drones/robotic systems,
3D printers, OT software/services, other services)

 TOTAL ICT SPENDING = IT SPENDING + TELECOM SPENDING + OTHER SPENDING

 TRADITIONAL ICT SPENDING = IT SPENDING + TELECOM SPENDING + BUSINESS

SERVICES (excludes “new technologies” in Other Spending)

© IDC 12
ICT Spending Overview
 Traditional ICT spending is broadly stable so far in 2018, with capital spending cycle not
yet winding down; datacenter investments continue to post double-digit growth in
some regions including the US, where cloud deployments are still leading the way

 Downside risks may start to put pressure on ICT budgets in the form of contingency
planning for 2019, but it’s clear that underlying demand for capacity, bandwidth and
usage metrics is still strong

 Cloud deployments continue to drive large portions of ICT spending, with cloud service
providers accounting for an increasing share of overall industry revenue while end-
users shift gradually from hardware to software (but enterprise refresh cycles have
also been strong)

 China is entering a period of evolution, with a long-term need to diversify away from
reliance on manufacturing and consumer technologies and drive innovation in other
sectors of the economy; trade war/tariffs come at an awkward moment

© IDC 13
ICT Spending vs GDP
Worldwide Year on Year Growth
8%

6%

4%

2%

0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

-2%

-4%

Total ICT Traditional ICT Real GDP

Source: IDC Worldwide Black Book (August 2018) 14

© IDC
Slight Slowdown in Growth Overall from 2017

Worldwide Traditional ICT Year-on-Year Growth 2017-2019

10%
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
APeJC Canada Central & Japan Latin America Middle East & PRC USA Western
Eastern Europe Africa Europe

2017 2018 2019

Source: IDC Worldwide Black Book (Standard Edition), August 2018; growth in constant currency © IDC 15
Broad-based strength across enterprise
segments; consumer and government spending
lag behind
Traditional ICT Spending Growth by Industry 2018
7%
6%
5%
4%
3%
2%
1%
0%

Source: IDC Worldwide Semiannual IT Spending Guide: Industry and Company Size July 2018 © IDC 16
Server/storage growth driven by cloud providers
in professional services, retail (Amazon) and
telecom
Server/Storage Growth by Industry 2017-2022 CAGR
7%
6%
5%
4%
3%
2%
1%
0%

Source: IDC Worldwide Semiannual IT Spending Guide: Industry and Company Size July 2018 © IDC 17
Robust Capital Spending Cycle Set to Wane in
2019
Worldwide Traditional ICT Year-on-Year Growth 2016-2018
10%

8%

6%

4%

2%

0%
PC Tablet Smartphone Server/Storage Network Software IT Services Telecom Business
-2% Services Services

-4%

-6%

-8%

2017 2018 2019

Source: IDC Worldwide Black Book (Standard Edition), August 2018; growth in constant currency © IDC 18
2018 Forecast Changes
Worldwide Traditional ICT Year-on-Year Growth 2018, Black Book V1 v V2
Forecasts
12%

10%

8%

6%

4%

2%

0%
PC Tablet Smartphone Server/Storage Network Software IT Services Telecom Business
-2% Services Services

-4%

V1 V2

Source: IDC Worldwide Black Book (Standard Edition), June / August 2018; growth in constant currency © IDC 19
All Devices Except Phones Negative in 2019
Worldwide Devices Spending Growth 2014-2022 (%)
20%

15%

10%

5%

0%
2014 2015 2016 2017 2018 2019 2020 2021 2022
-5%

-10%

-15%

-20%

Hardcopy Peripheral PC Monitor Smartphone Tablet Traditional PC

Source: IDC Worldwide Black Book (Standard Edition), August 2018; growth in constant currency 20
Devices Highlights
 Smartphone units declined in 2017 (first ever annual decline), but increase to average prices continues to drive
spending growth as premium phones account for larger share of the market and users in emerging markets trade
up from low-cost handhelds

 Big smartphone declines in China not offset by ASPs (spending also declined YoY), but ASPs increased in mature
markets thanks to design innovation and ongoing shift to large screen ‘phablets’; 5G and AR/VR will be the next big
driver for ASPs from 2019

 PC market beat expectations in Q1, indicating continued momentum in commercial sector; business adoption of
Windows 10, demand for premium notebooks and focus on gaming desktop systems have injected pockets of
growth into a market which had stagnated; easing of supply shortages compared to Q1 2017 helped to drive
recovery

 Slate tablets are still declining, mainly due to consumers gravitating towards smartphones and tablet lifecycles
which are more like PCs than phones; some growth in hybrid devices, especially in commercial segments where
tablet spending is increasing YoY

 Migration to mobile form factors continues to drive down demand in PC Monitor market, despite pockets of
growth for curved and high-res displays in premium segment

 HCP shipments posted growth in Q1, with positive momentum in both inkjets and laser units; growth driven by
business inkjet market plus laser MFPs; strong growth in emerging markets including China, India, Middle East &
Africa where there is still demand for low-end inkjets to print business documents (but lower ASPs contribute to flat
or declining revenues)

© IDC 21
Datacenter Buildout Continues in 2018
Worldwide Infrastructure Spending Growth 2014-2022 (%)
20%

15%

10%

5%

0%
2014 2015 2016 2017 2018 2019 2020 2021 2022

-5%

Enterprise Network Telecom Equipment Server External Storage

Source: IDC Worldwide Black Book (Standard Edition), August 2018; growth in constant currency 22
Infrastructure Highlights
 Strong momentum for Purley and EPYC-based servers; demand from cloud service providers and
enterprise users is strong

 IBM z14 launch in Q4 has driven high-end server market back to strong growth, but this market will
remain cyclical - long-term declines sprinkled with major platform refreshes

 Cloud providers Amazon, Google and Facebook account for a growing share of infrastructure spending;
business dominated by ODMs, but OEMs are also focused on this key customer segment (Worldwide Black
Book: Service Provider Edition coming soon in 2019)

 Storage spending driven by datacenter efficiency, operational simplicity, comprehensive support for next-gen
workloads; flash continues to grow, could even be boosted by tariffs on HDD imports; AFA grew more than
50% in Q1

 Ethernet switch market driven by customers adopting higher speed switches, especially in datacenter
deployments; most growth in switches and routers driven by service provider customers

 Enterprise WLAN market supported by demand for network refreshes and DX initiatives, especially in AP
and some emerging markets (US market is more mature, with most growth now elsewhere)

© IDC 23
China Hardware Contribution Set to Weaken
China Traditional ICT Year-on-Year Growth 2017-2019
25%

20%

15%

10%

5%

0%
PC Tablet Smartphone Server/Storage Network Software IT Services Telecom Business
-5% Services Services

-10%

2017 2018 2019

Source: IDC Worldwide Black Book (Standard Edition), August 2018; growth in constant currency © IDC 24
Total ICT Spending Proportions 2017: U.S. vs. China

USA PRC

Hardware Software Hardware Software

IT Services Telecom Services IT Services Telecom Services
Business Services New Categories Business Services New Categories

Source: IDC Worldwide Black Book (August 2018)

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Traditional ICT Spending Proportions 2017: U.S. vs.
China

USA PRC

Consumer Distribution and Services Consumer Distribution and Services

Financial Infrastructure Financial Infrastructure
Manufacturing and Resources Public Sector Manufacturing and Resources Public Sector

Source: IDC Worldwide Semiannual IT Spending Guide: Industry and Company Size July 2018 26
Traditional ICT Spending Proportions 2017: U.S. vs.
China

USA PRC

Small Office (1-9) Small Business (10-99) Small Office (1-9) Small Business (10-99)
Medium Business (100-499) Large Business (500-999) Medium Business (100-499) Large Business (500-999)
Very Large Business (1000+) Very Large Business (1000+)

Source: IDC Worldwide Semiannual IT Spending Guide: Industry and Company Size July 2018 27
USA Hardware Markets Still Have Momentum

USA Traditional ICT Year-on-Year Growth 2017-2019

15%

10%

5%

0%
PC Tablet Smartphone Server/Storage Network Software IT Services Telecom Business
Services Services

-5%

2017 2018 2019

Source: IDC Worldwide Black Book (Standard Edition), August 2018; growth in constant currency © IDC 28
USA Dominates Software-Driven Innovation and
Cloud
Regional Share of 3rd Platform Markets 2018
100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
3D Printing AR/VR BDA Cloud Cognitive AI IoT Mobility Robotics Security Social

APeJC Canada CEE Japan LA MEA China USA WE

Source: IDC Worldwide Black Book: 3rd Platform Edition, June 2018; APeJC = Asia Pacific excluding Japan © IDC 29
and China
AP/China Heavily Focused on Manufacturing
Industry Technologies (including OT) and
Consumer Mobile
Regional Share of 3rd Platform Markets 2021
100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
APeJC Canada CEE Japan LA MEA China USA WE

3D Printing AR/VR Big Data and Analytics Cloud Cognitive AI IoT Mobility Robotics Security Social

Source: IDC Worldwide Black Book: 3rd Platform Edition, June 2018; APeJC = Asia Pacific excluding Japan © IDC 30
and China
Traditional ICT Growth Has Plateaued in Emerging
Markets
Traditional ICT Spending Growth (% constant currency)
35%

30%

25%

20%

15%

10%

5%

0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
-5%

-10%

-15%

China India Russia Brazil

Source: IDC Worldwide Black Book (Standard Edition), August 2018

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New 3rd Platform Technologies Will Drive Faster
Growth
Total ICT Spending Growth including new technologies (% constant currency)
35%

30%

25%

20%

15%

10%

5%

0%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
-5%

-10%

-15%

China India Russia Brazil

Source: IDC Worldwide Black Book (Standard & 3rd Platform Edition), August 2018
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Summary
 Tariffs/trade war escalation are a wild card which could derail current positive momentum; IDC will publish a
downside scenario in the next few weeks, with alternative economic assumptions

 Baseline forecasts reflect strong market performance so far in 2018; although capital spending cycle will
begin to wind down in the next 12 months, software and services markets are strong and underlying
fundamentals for ICT demand remain broadly positive across regions

 New technologies add net new growth to the ICT industry, including in emerging markets where traditional
ICT has begun to plateau due partly to leapfrogging legacy platforms and traditional ICT build-out in favour of
cloud and mobile ‘IT as a service’ at lower price points

 Cloud and mobile continue to account for a growing share of ICT industry revenues, including cloud
deployments of server/storage and network infrastructure in addition to public cloud SaaS and PaaS

 Amidst migration to cloud and service provider models, vendors are focused on driving higher ASPs in
enterprise and consumer markets, e.g. premium smartphones (5G, AR/VR host devices, design innovation),
ultramobile notebooks, hybrid commercial tablets, flash storage, high-speed networks

 Rapid adoption of new technologies in manufacturing industry will enable China to maintain strong pace of
overall growth in the short-medium term, assuming no severe escalation of trade war

© IDC 33
For More Information

Please email [email protected]

with any follow-up questions.

Stephen Minton
VP, IDC Customer
Thanks for joining us! Insights & Analysis

© IDC 34
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