IT Services Boom Amid Economic Uncertainty: Real Estate Woes and Shifting PC Sales Trends

[00:00:02] It's Monday, March 3rd, 2025 and I'm Dave Sobel. Three things to know today. IT services are booming, but will tariffs and budgets slow the party? MSPs, if your customers depend on real estate, you might have a problem. And who's buying PCs? Not consumers. HP and Dell see growth in AI and business sales. This is the Business of Tech.

[00:00:26] The IT professional services market is projected to grow significantly with a valuation of approximately $870 billion in 2023 and an expected reach of nearly $1,983,000,000,000 by 2032, per data from SNS. This represents a compound annual growth rate of 9.62% from 2024 to 2032, according to that report.

[00:00:53] The market's growth is driven by an increasing demand for cloud computing, artificial intelligence and automation across various sectors as organizations seek to enhance operational efficiency and cybersecurity. The project-oriented services segment currently holds the largest market share, while the information technology outsourcing services segment is anticipated to experience the fastest growth, projected at over 10% annually.

[00:01:18] North America leads the market with a 39% share, while Europe is expected to grow rapidly due to rising digital transformation initiatives. And tariffs will impact customers more broadly. Concerns about the outlook for U.S. economic growth are emerging, as worries over on-again, off-again tariffs complicate business decisions.

[00:01:40] Analysts note that while initial jobless claims surged to 242,000 last week, reflecting a potential early warning sign, the overall economic conditions remain stable, with the economy expanding at 2.3% annualized pace in the fourth quarter. Torsten Slock, the chief economist at Apollo Global Management, warns that 3 million federal employees and 6 million federal contractors may become cautious in their spending due to job uncertainties.

[00:02:10] Meanwhile, clients of Barclays are increasingly inquiring about recession risks, although they consider it unlikely in the near term. Consumer sentiment has fallen approximately 10% in February compared to January, marking the second consecutive decline. Notably, buying conditions for large-ticket items have plunged nearly 20% in February, signaling consumer expectations of rising prices due to tariffs.

[00:02:36] That said, a recent survey by Bluevine reveals that small business owners are entering 2025 with increased confidence, despite ongoing economic challenges. The survey, which involved 1,200 small business owners, found that 79% of respondents feel optimistic about their business outlook, a rise from 73% in mid-2024. While optimism is high, inflation remains a significant concern, with 64% of owners identifying it as a top issue.

[00:03:04] Additionally, more than half cited taxes and fees as a worry. To adapt, 41% have changed their spending plans for the year. Payroll continues to be the largest expense, followed closely by material costs, which have become a growing concern for 56% of solo business owners. To maintain profitability, two-thirds of small business owners have raised prices on some or all of their products or services. The demand for access to capital remains strong, with most seeking funding for growth and working capital.

[00:03:34] Why do we care? Clear as mud, isn't it? The IT services market is growing, but economic uncertainty and tariff impacts cannot be ignored. IT providers should position themselves as cost-saving efficiency enablers, not just tech suppliers. Some insights. Project-oriented services dominate now, but outsourcing services are growing the fastest, at more than 10% annually. It suggests increased reliance on managed services or co-managed IT structures.

[00:04:01] Rising tariff-related costs may tighten IT budgets, especially for hardware-heavy projects. The drop in consumer sentiment and big-ticket purchase reluctance indicates broader spending caution, which could trickle down to IT investments. Tariffs could drive up costs on IT infrastructure, making hardware-heavy projects less attractive. And it could boost demand for cloud services as a flexible, CapEx-lite alternative.

[00:04:27] If consumer sentiment continues to drop, IT budgets, particularly in S&Bs, may tighten significantly. And amidst all that, the fastest-growing opportunities lie in outsourced services, AI-driven automation, and cybersecurity, areas that help businesses do more with less. This episode is supported by Synchro.

[00:04:49] Synchro, the integrated remote monitoring and management and professional services automation platform, is designed for mid-sized and growing managed service providers. Its latest innovations include an AI-powered smart ticket management system with automatic ticket classifications, guided resolution steps using pre-approved scripts, and a natural language smart search function. These tools streamline ticket handling and improve response times. Discover more at Synchromsp.com.

[00:05:20] The Return to Office initiative has not revitalized America's office market, as reported by Business Insider. Office buildings experienced an 11% drop in value last year, with average prices falling to $174 per square foot. Since 2019, the average sale price of office buildings has plummeted by 37%. Analysts at Capital Economics predict that office values could decline another 10% through 2029.

[00:05:47] While some areas of the market are performing better, the national office vacancy rate reached nearly 20% in January. Experts suggest that the struggles of the office sector will continue, with a weak recovery expected in 2025 and ongoing debates about return-to-office policies likely extending until 2027.

[00:06:07] Speaking of physical space, Microsoft has now done its plan to invest $80 billion in data centers for the fiscal year, ending in June, remains on track. This statement follows that report from investment firm TD Cohen, which claimed the company was canceling leases with data center operators, implying a decrease in demand for generative artificial intelligence. Microsoft did not confirm the details of the report, but stated that customer demand still exceeds supply.

[00:06:35] Recently, the company paused construction on a multi-billion dollar data center in Wisconsin to assess technology changes. Why do we care? The IT market remains strong, but the collapse of commercial real estate and shifting AI infrastructure strategies suggest that providers should focus on hybrid work solutions, cloud cost management, and AI integration, not traditional office IT. The other areas to consider? The impact on customers.

[00:07:02] Declining office values could hurt commercial real estate-dependent IT providers who rely on traditional office infrastructure, or customers with dependency on the real estate market. Businesses delaying office decisions until 2027 could result in prolonged uncertainty around IT purchasing cycles tied to real estate investments. If your customers are linked to real estate, you should be concerned. So you should check.

[00:07:30] According to new research from International Data Corporation, global personal computer and tablet sales are projected to face significant challenges in 2025. Sales volume is expected to reach 273 million units, which is only a 3.7% increase from the previous year. The traditional PC market is anticipated to grow by less than 1% annually until 2029, partly due to stabilization following the migration to Windows 11.

[00:07:57] Meanwhile, tablet shipments are predicted to decline by 0.8% to 143.3 million units in 2025. A major factor affecting these sales is the potential introduction of U.S. tariffs on Chinese goods, which could rise to 20%. The situation is leading to price increases and weakened consumer demand. However, commercial PC sales are expected to see a 2% growth in 2025, driven by large contracts and modest migration to Windows 11.

[00:08:26] So, good timing to look at HP and Dell. HP reported a revenue increase of 2.4%, totaling $13.5 billion for the quarter ending January 30, 2025. The company achieved an operating profit of $984 million, marking its third consecutive quarter of revenue growth. HP's personal systems division, which handles PC sales, saw revenues rise 5% year-over-year to $9.2 billion,

[00:08:56] with commercial sales contributing nearly half of total revenue. In contrast, consumer PC sales experienced a decline of 7% in revenue and 11% in unit sales. Dell Technologies reported a net income of $1.5 billion on revenues of $23.9 billion for the quarter ending January 31, 2025. This marks a year-over-year increase of 27% in net income and 7% in revenue.

[00:09:24] For the fiscal year 2025, Dell's total revenue reached $95.6 billion, with a net income of $4.6 billion, up 36% compared to the previous year. The company's infrastructure solutions group saw significant growth, with revenues up 22%, driven by demand in artificial intelligence and traditional server markets. Meanwhile, Dell's client solutions group, which includes its personal computer sales,

[00:09:53] generated $11.9 billion in revenue for the quarter, with commercial PC sales rising 5% year-over-year. Dell's vice chairman and COO Jeff Clark expressed optimism about the company's prospects in the AI sector, noting a backlog of approximately $9 billion in AI server orders. Why do we care? The days of relying on PC sales for growth are fading, and those PCs may get much more expensive. For HP, PC revenue growing 5% in commercial,

[00:10:23] but consumer sales dropping, reinforcing that consumer demand remains weak. For Dell, strong commercial PC growth, but biggest gains are in AI-driven infrastructure. That $9 billion backlog in AI server orders suggests enterprises prioritizing AI infrastructure over end-user devices. So, too, consider desktop as a service as an alternative to expensive PC refreshes, particularly in an upgrade gear with Microsoft pushing Windows 11.

[00:10:54] Thanks for listening. Today is National If Pets Had Thumbs Day. Really, that's a super weird big idea for you. Nerdy Ocon will be held in Palm Springs, California from April 7th through 9th. Visit NerdyOcon.com to learn all about it. The Business of Tech is written and produced by me, Dave Sobel, under ethics guidelines posted at businessof.tech.

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