Data Shows Significant Drop in IT Services Spending Post COVID-19

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Global government spending data shows worldwide decline in IT spending this year, though the numbers tell a unique story for the U.S. government.

Federal and central governments across the globe have shifted spending priorities to combat the COVID-19 pandemic, with notable declines in IT spending worldwide, according to a new report.

The U.S. has not been immune to this shift, with a major drop in spending on IT services canceling out continued investments in hardware and software, according to IDC’s “COVID-19: Global and U.S. Federal Spending—Where the Money Is Going,” published Tuesday.

The report notes the COVID-19 pandemic has forced changes for every sector but argues “the health crisis is affecting government IT spending differently than other industries.”

“Even though trillions of extra dollars are being disbursed, most is going into grants, health and expense relief, not [new] IT systems. New project investment has slowed,” Shawn McCarthy, research director for IDC Government Insights, wrote. “In short, trillions of dollars will go into emergency grant money, but very little is targeted specifically at government IT.”

That said, IDC researchers have noticed increased spending in several IT areas, including work-from-home and cloud-based tools; network upgrades to increase bandwidth for external connections; videoconferencing; IT and supply chain security; automation solutions; and grants and acquisition management. McCarthy also said IDC expects IT spending to “slow, though not really decline,” with more of a focus on buying hardware than software for the time being.

“The only exception is IT services, which will decline very slightly for 2020,” according to the report.

Globally, government spending on IT has taken a small hit this year, according to the data. IDC compiled several datasets showing spending on hardware, software and IT services from 2018 to 2020 and projecting beyond to 2023. The tables show historical and projected spending as of January and April for each year, highlighting a small but noticeable drop in 2020 as the COVID-19 crisis spread worldwide.

This year, government IT spending worldwide dropped from $128.3 billion in January to less than $125.8 billion in April, falling across all three segments. While not a huge drop, it is significant as the only overall decrease when compared with the recent past. For example, in 2019, spending rose from $124.9 billion in January to $125.4 billion in April.

In the U.S., federal spending on IT showed a similar decline between January and April, going from $56.2 billion to $55.7 billion.

Interestingly, the U.S. government saw higher increases in spending on hardware and software over that time, but a large drop in IT services spending—down $1.1 billion—brought the whole total down.

“The main areas where new IT dollars are being spent include improvements for telework, including teleconferencing solutions, improved network connectivity, secure log-ons, and cloud-based file sharing,” McCarthy wrote. “Other target areas include supply chain monitoring and supply chain management systems, with a focus on procurement and health-related products and solutions.”

For federal tech vendors, he suggested looking ahead to the fall and a potential COVID resurgence.

“If field hospitals ramp up again this fall, we expect to see renewed demand for pop-up wireless network connectivity and connected device management for both medical and management devices,” he wrote. “Look for opportunities related to the long-term expansion of government networks, starting with improvements to home connectivity and continuing with improved [virtual private networks] to help integrate multiple cloud services.”

The full report includes added details on the various COVID-19 spending bills and where and how federal agencies are allocating those dollars.

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