Q2 2023 ITC spending – declines in memory and devices, growth in AI hardware

In the second quarter of 2023 there was a 3% growth in ITC spending to $1.855 trillion and a 10% growth in the total net profit of all vendors to $275 billion (see my précis in the Figure above); however, on an annual basis spending was flat at $7.155 trillion and profits were down 13% at $960 billion. The softness I reported last quarter remains, with a significant downturn in memory (HDD, DRAM and NAND) and devices. As a counterbalance there is a strong investment in general AI by public clouds. I want to share my findings with you and welcome any questions you might have as a result.

On a country basis I’ve calculated the total spent on ITC in the quarter and year (see my Figure above, where I show the growth rates of a selection of those I cover for both local currency and current $US calculations).
Netherlands, Belgium and the UK were the best performing countries, while Singapore, Hong Kong and mainland China were among the worst. Russia, which continues in its unjust invasion of Ukraine, also declined massively due to the sanctions imposed by the USA and other Western countries. The USA itself, which has done a good job of controlling inflation in the hope of avoiding a recession, was in the middle in terms of spending growth.

Gaming was the strongest of the 30 offerings I split the whole market among (I show a selection of those with the highest growth and strongest decline in my Figure above), despite Microsoft’s continued difficulties with the UK regulators in confirming its attempt to take over Activision Blizzard. There was also strong growth in most IT services areas, whether older (managed services and outsourcing) or more modern cloud services (IaaS/PaaS and SaaS). We saw a decline in spending in all types of hardware offerings (of which PC sales were the worst) and very significant decline in spending on all types of memory products, of which NAND chips used in flash memory was the worst.

The strongest performance among the vendors I track was by nVidia, which reported strong demand for its graphics acceleration chips of AI applications – especially among public cloud suppliers. Gaming helped Sony, Nintendo and Activision Blizzard to report high growth. Extreme Networks showed good growth, underling the better-than-average rise of spending on networking.

Veon had the worst performance of the suppliers I track; the 54% drop in its revenues was due mainly to its decision to pull out of Russia. Other poorly performing vendors included PC suppliers Acer and Lenovo and Samsung (which unfortunately is a supplier of smartphones, tablets and memory components – all of which are suffering a drop in demand). Poor performance was also reported by most other manufacturers of memory products.
Overall the ITC market is still affected by the disruptions caused by the COVID pandemic in which memory components were scarce and many office workers and students needed new PCs, tablets and smart phones to help them to work from home. Breakthroughs in the quality of general AI by cloud suppliers typified by ChatGPT is stimulating investments by many public cloud and enterprise IT suppliers as a counter-balance.
Poor economic growth, high inflation, government sanctions and war are de-globalizing our industry – typified by the Chinese government’s recent decision to stop supplying Apple products to civil servants and Apple’s decision to swap some of its manufacturing to India. I expect very major changes in coming years in the quest to replace fossil with renewable energy to try to slow Climate Change; some of which will challenge the dominance of China as the country of choice for manufacturing and the beginning of some very long supply chains.