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High-Tech Sales Rising, Cannibalization Too

Volatile. Complex. Savage. These are the three words that today best describe the current high-tech equipment, software, and manufacturing market.

Having the tools, products, and knowledge to effectively navigate the turbulence will determine how your company fares this year, according to researchers.

To further muddle the situation many executives face, the high-tech sector isn't slowing down, research and consulting firm IDC said in a recent report. In a stark paradox to the instability in all high-tech sectors — hardware is as similarly impacted as software and consulting services — demand for products and other offerings remains strong and pushed total sales in the entire ICT market up to $3.6 trillion in 2012, according to IDC.

Sales in 2013 will increase at a mid-single digit rate. It said further:

The global economy has been volatile through the past 12 months, and this sense of uncertainty persisted into the first quarter of 2013. IDC expects the U.S. economy to stabilize in the second half of the year, driving IT spending growth of 5.5 percent.

2013 will be another tough year for Europe, however, where tech spending is expected to increase by just 2 percent as the Eurozone and UK struggle to shrug off the lingering debt crisis. Excluding mobile devices, growth in Europe will be less than 1 percent. Japan has meanwhile lost most of the post-reconstruction momentum that drove IT spending to increase by 4 percent in 2012, and will record IT growth of 0 percent this year.

Take PCs, add to pot, bring to boil: Smartphones and tablets  have not complemented PC spending but cannibalized it.

Take PCs, add to pot, bring to boil: Smartphones and tablets
have not complemented PC spending but cannibalized it.

What lies ahead
The implications are clear: Some companies will make bucket loads of money this year and others will lose a bundle.

The turbulence will be more obvious in developed economies but there are plenty of opportunities for increasing sales and profits even in these regions. Growing demand for information technology products and the desire to drive up productivity is forcing many companies to increase their capital expenditure. While they may not be refreshing notebook PCs and workstation purchases, companies are adding tablet PCs at a rapid pace and piling smartphones on employees to ensure they are even more mobile and able to respond swiftly to customers.

The result is a divergence in market performance; demand for smartphones and tablets is surging while PC sales growth is steadily declining. If your company is a publicly-traded enterprise that doesn't have strong offerings in the faster-growing markets, it will end up not just with unhealthy sales but also unfavorable valuation profile.

Rise of the cannibals
IDC described what's happening to PCs as “cannibalization,” a process some predicted but which some OEMs said would not happen on the assumption that smartphones and tablets were only creating a new demand stream rather than chewing into computer sales. It turns out they were wrong, a painful reality for OEMs, components suppliers and other services providers to the computing market.

“Cannibalization is happening across the industry,” said Stephen Minton, VP at IDC's Global Technology and Industry Research Organization in the statement cited above.

He went on to say:

Smartphones have taken over from feature phones, tablet adoption is impacting PC spending, and the Cloud is affecting the traditional software, services and infrastructure markets. IT spending is still growing organically, but not at the same pace as prior to the financial crisis. Businesses are adopting IT solutions such as virtualization, automation and SaaS as a means to reduce the annual increases in their overall IT spending at a time when economic uncertainty remains high.

Still, a vibrancy
This development shouldn't obscure the good news for companies in the high-tech market, however. This is still a vibrant market. Spending on “hardware, software and IT services” alone jumped to $2 trillion in 2013 and will continue to increase in 2013. Some regions will show strong growth, compensating for weakness in others.

This may be the season to intensify efforts to gain a stronger presence in China and other emerging markets, IDC said.

Said IDC's Minton:

We're more confident about China than we were in the middle of 2012, when PC shipments were slowing and there was a sense that the economy had slowed down more quickly than the government had planned. Underlying IT demand remained strong, despite the volatile capital spending patterns that mainly affected PCs, and total IT spending in China still increased by 16 percent last year, which was only slightly down compared to 17 percent growth in 2011. We expect more of the same in 2013, even in spite of the inevitable slowdown in some emerging technology adoption rates as those markets gradually mature.

5 comments on “High-Tech Sales Rising, Cannibalization Too

  1. Brian Fuller
    March 7, 2013

    … but I operate with three devices for most of every day: laptop, smartphone and tablet. 

    Yes, it's stupid and inefficient, but each has intrinsic value that the others don't. 

     

  2. FLYINGSCOT
    March 7, 2013

    Don't you get the impression that the growth forecast is always 5-7% and after the fact there is always some mitigating factor to explain why the forecast was inaccurate. 

  3. mfbertozzi
    March 8, 2013

    @FLYINGSCOT: I agree with you, personally I believe that it depends on the region that you are taking in consideration; some regions in the world are facing a market ramp, others (it seems the most…) are facing a negative trend.

  4. t.alex
    March 8, 2013

    Yes, i need a laptop too. And a smartphone. Maybe a tablet.

  5. Brian Fuller
    March 8, 2013

    One thing we haven't mined on this thread, is that I think there will be areas in the next three years that will help grow the table/smartphone/mobility market and not cannibalize PCs. Take the Akash tablet in India, for example. 

    While this low cost devices $35 retail can serve as one person's compute/communications device, it is also expected to used in transportation and industrial applications because of the attractive cost point and connectivity. 

    Thoughts?

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