The UK’s decision to leave the EU will have a very bad effect on international business – not least the IT industry, which is the most hyper-global of all. As you know I’ve been monitoring opinions on the issue from before the referendum last June. Initially the surprise result to leave slowed purchases, but the massive fall in the value of the Pound pushed prices up. Looking at the country 2 quarters on (this piece takes into account the market up to the end of 2016), we’ve seen some strong growth despite everything. I’m sure you’ll want to think about what happened in the last half of the year in order to make predictions about the future – especially the market in 2020, which will be the first year in which the UK will be independent.
Looking at IT hardware markets (see Figure above), there were the typical up and downs we see in most years. The overall IT and Communications market in the UK grew by 12% to £202b, the hardware market by 5% to £39b and hardware maintenance by 9% to £12b.
Sub-market performance was as follows:
- PC – the market actually grew 9% to reach £5.7b; it had declined significantly over the previous 5 years mainly due to competition from smart phones and tablets.
- Peripherals also grew, with spending rising by 8% over 2015 levels.
- Gaming consoles – another 8% rise (to £370m; expect another increase in 2017 following Nintendo’s introduction of a new console.
- Server – this is (just) the largest of the enterprise IT hardware categories; it grew by 8% to reach £2.8b.
- Storage system – following 4 years of decline , this area grew by 9% in 2016 to reach £1.1b.
- Enterprise networks grew by 6% (the lowest growth of all hardware offerings) to reach £2.3b.
Things would have been very different if we paid for these products in current $US – the overall market was the same ($274b) in 2015 and 2016 and the hardware market declined by 7%. Of course there are no significant European – let alone UK suppliers, so the leading suppliers will all have seen a fall in revenues, despite the market growing; currency changes can have a devastating effect on business.
The Figure above shows the annual revenues of the leading hardware suppliers in the UK. Their progress has varied significantly – in particular:
- Apple is by far the largest IT supplier in the UK (and worldwide) on the strength of its iPhone, iPad and other products; clever marketing and a close attention to customer experiences have given it an unassailable lead (see the Figure above). In recent quarters it has become the victim of its own success and is slowly turning (a bit like IBM) to managing net profit for its shareholders. Apple and other suppliers will behave very differently should the US government decide to lower corporation taxes as it will allow it to repatriate large sums of profit held internationally.
- Samsung is the second largest supplier of ITC offerings in the UK, although its revenues have remained at around £4b since 2011.
- The failure of HP to establish itself as a supplier of smart phones after its acquisition of Palm; its separation into HPE and HP Inc. may succeed in reversing the continuous decline in its UK revenues if it manages to become master of the next big consumer device, but it seems unlikely anytime soon.
- Dell (shown here without the addition of EMC) has managed to grow its UK business and will shortly catch and overtake HP’s combined revenues.
- Cisco has maintained strong UK revenues on the strength of its IP networking offerings and recent data centre push, although I predict it will undergo some major organisational change in 2017.
- Nokia – the largest UK supplier in 2007 and 2008 suffered badly from being the leading supplier of feature phones during the rise of smart phones, Apple and Samsung – suffered from a continuous decline in annual revenues before jettisoned its phone business and bought Alcatel Lucent.
- Lenovo has grown its business mainly as a result of buying a number of US businesses such as IBM’s System X and the Motorola mobile phone business which rested for a short time with Google.
- Sony has managed to grow its business in the last year or so, mainly on the popularity of its consumer products.
- Huawei is growing fast – driven by deep investment and the fullest portfolio of products from smart phones to Service Provider networks.
As I’m sure you’ve worked out for yourself – the only major European hardware supplier is Nokia and there are absolutely no UK players at all. This is a major disadvantage to the growth of the UK economy after it leaves the EU.
So perhaps these international suppliers can help the UK economy by paying more tax. The leading suppliers in terms of net profit are shown in the Figure above. Unfortunately it is unlikely that they will (see my earlier post), as the government will need to continue to offer sweetheart tax deals to persuade major vendors to continue to employ large workforces and prevent them from relocating HQ functions to the continent once the UK leaves the EU.
Since the Brexit vote we’ve been living in a ‘phoney war’ in the UK; the slight downturn in ITC purchasing in Q2 was due to uncertainty from the surprise result. Higher prices in 2017 will create a decline in UK spending, but the real challenges will start in 2018 and worsen in 2019 when skills shortages, high inflation and new customs duties will be a disaster for all of us working in the ITC industry.
My research is based on a continuous tracking of the market. Let me know if you’d like to know more about the custom planning information I’d like to supply you with on the UK, EU, EMEA, or other region by emailing me here at ITCandor..