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When it comes to IT spending, a recent research report reveals that Canadian tech spending is relatively flat, topping $93 billion this year. According to Forrester Research Inc., this represents an increase of only 3.3 per cent, compared to five per cent in the 2015.
The report, titled The Canadian Tech Market Outlook For 2016-2017, reveals that this year and the next promise to be interesting times for the local sector.
Here are the key findings:
Spending on IT hardware slows to a halt this year
The research firm reports that strong hardware spending in 2015 and early 2016 will shift to software and services in 2016 and 2017. In general terms, tech market growth tracks nominal GDP growth — but Canada hasn’t been following this pattern, notes report author Andrew Bartels, vice president and principal analyst at Forrester, who authored the report.
“A bright spot will be investments in SaaS applications and cloud across a broad set of technologies,” the report noted.
Communications equipment investments will slightly grow this year
Spending on routers, switches, phone systems, wireless gear, and audio and video broadcasting equipment made a big recovery in 2015 after cutbacks in 2013 and 2014, according to the report.
The main Canadian telecos — Bell, Rogers and Telus — also made key investments last year in wireless and broadband.
Expect these investments to slow in 2016 to a 1.4 per cent rate and fall in 2017, leading total investment in network equipment to decline by 0.6 per cent, Forrester said.
A weakened loonie will impact US-dollar denominated growth
The report notes that the Canadian dollar has weakened 20 per cent since its highs in 2011 to early 2013. As a result, local exports are increasingly lucrative for the US market but have a negative impact on our shores.
With the loonie expected to continue its slide in 2016, Forrester reports that Canadian tech purchases measured in US dollars will grow by 1.2 per cent to US$72 billion in 2016, then accelerate to 4.6 per cent growth in 2017.
It’s all about the gear
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Network gear purchased by telcos will make up more than half of communications equipment spending, according to the report:
“Purchases of applications will represent almost three-fifths of software spending, and the related systems integration services for both licensed software (flat to declining) and SaaS (increasing) will make up two-thirds of the total consulting and systems integration services spend.”
Telecom spending expected to blossom in 2016
Forrester’s forecast includes telecom services for the first time. This spending will reach $22 billion in 2016 — the largest share of the tech market.
In addition, the report found tech consulting is shortly behind with $21 billion this year — up four per cent from 2015.
Last year’s Canadian tech optimism will give way to caution in 2016 and 2017
According to the tech research firm, the five per cent growth of the Canadian tech market in the first three quarters of 2015 will “fade out” in 2016. With this in mind, CIOs and senior technology decision makers should strategically expect slow growth — 3.3 per cent followed by 3.1 per cent in 2017.
“While 2016 to 2017 promises to be a tumultuous period for many Canadian industries, smart tech management executives will actively look for areas to rationalize applications, modernize their technology stack, and renegotiate contracts,” the report concluded.