Hardware makers just can’t catch a break. A report released Monday by research firm IDC finds that while hardware is now the largest single IT budget item for most small and medium businesses, it will be the slowest growing category over the next four years for that group.
Spending by small and medium businesses (SMBs) on laptops, PCs, peripherals, and other hardware will show a just a 1.1% compound annual growth rate (CAGR) over the next four years compared to 6.6% growth in software spending, and 3.8% growth in IT services spending, according to IDC.
Overall, worldwide IT spending by companies with up to 1,000 employees will grow at a 4.2% CAGR to $668 billion in 2020 from $564 billion this year.
As of this year, more than half of the money spent on software is earmarked for business applications, including what IDC calls “enterprise resource management,” a category that includes inventory control, logistics, and accounting. That bucket also includes customer relationship management (CRM) software (like Salesforce.com (CRM)) and content management software for creating and maintaining web sites or other publications.
The fastest growing category overall, according to IDC’s summary, will be “business services” which the research firm expects to show 7.4% CAGR over the same four-year period. The summary does not define what business services are.
Interestingly, the term “cloud computing” was not even mentioned in the report summary.
This is odd given that hardware makers like Cisco (CSCO), Hewlett-Packard (HPQ), IBM (IBM), and EMC (now Dell Technologies) have been stressed for the past decade by the growing tendency of businesses to stretch out buying cycles of servers and PCs and storage arrays while putting more of their work into shared public clouds like Amazon Web Services(AMZN). If you rent servers on AWS or Microsoft Azure (MSFT), you probably won’t need to buy as many of your own servers or as often as in the past.
But the report does note that more than 40% of service spending by SMBs will go to outsourcing, meaning applications hosted outside the company’s own data centers, business process outsourcing, and infrastructure management—so that most likely includes the aforementioned public cloud.
Fortune reached out to IDC for comment and will update this story as needed.