IT Spending Projections See A Drop, but Not A Collapse

Channel partners urged to concentrate on services and building revenue streams to maintain profitability. Virtualization, managed services and security remain robust areas.

November 14, 2008

Al Senia

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IT spending growth is likely to shrink to the low single digits next year, but probably won't collapse as badly as spending in other sectors of the U.S. economy, according to projections from two industry  research firms.

IT spending is expected to grow by 2.6 percent in 2009, according to IDC, down from its earlier forecast of 5.9 percent growth. In the U.S., IDC believes IT spending is now expected to grow just 0.9 percent, well below its August forecast of a 4.2 percent growth in IT spending. Originally, IDC foresaw IT spending rising as much as 5.9 percent in 2009.

Meanwhile IT research advisory firm Computer Economics says IT spending will be flat next year. The company's October survey of 159 North American IT organizations, found that some respondents anticipate IT spending reductions, others expect increases, and the median of it all concludes that IT spending growth in 2009 will be flat compared with 2008.

For channel partners, the IT spending data means more of an emphasis on service revenue and other technologies such as cloud computing, managed services and SaaS that can provide recurrent revenue streams. The aim will be to help business clients reduce IT costs.

“IT budgets are holding up fairly well, given the circumstances, said John Longwell, director of research for Computer Economics. "We think IT organizations have been running fairly lean since the last recession, and that is one reason why we’re not yet seeing any plans for deep reductions in staffing or spending.

"For solution providers, the service business should remain intact while project work will obviously get tighter. The best opportunities are going to be in the midmarket and in areas like data-center automation, virtualization, and help-desk automation that promise to reduce costs. Solution providers that can figure out how to help companies reduce software maintenance costs will be golden.”

John Gantz, chief research officer for IDC, doesn't think this cutback will be as bad as it was in 2002, which came right after the Sept.11attacks and the dot-com implosion. "The IT market is in a difference space. There's no Y2K or dot- com bubble overhang. Things are pretty lean," he said.

The latest data is in line with a recent report from Gartner that found new hardware deployments and new software projects were being put on hold, as were more discretionary items like training and travel. But security, maintenance and personnel were being maintained, as they are viewed as indispensable.

In its survey, Computer Economics found the most common steps to save money involved  cutting travel (55 percent of respondents), delaying the start of major projects (44 percent) and not filling open positions (40 percent).

IDC said the areas most likely targeted for cutbacks were application development for new projects, PC hardware upgrades, server upgrades, some enterprise applications, Office upgrades and helpdesk.

Business analytics and business intelligence had a very wide range of response because their relative value is different from one industry to the next. Some companies are reliant on BI as a vital way of generating leads and cutting it would be suicide.

So is cutting security. "Cutting security is like cutting electricity," said Gantz. "You can't cut it. You have to let people go or sell a plant before you cut your IT security. If you cut back and have a security breach, any money you saved on the cutback is lost."

The IT department has, over time, become expected to deliver profits to a firm, and Longwell said any project that can make money likely will see continued investment. "We're still seeing companies investing in datacenter automation, virtualization and other areas designed to improve the efficiency in their operations, and I don't see those being curtailed because they promise a return on investment," he said.

The outlook beyond 2009 gets a little better. IDC expects IT spending to make a full recovery, with growth rates approaching 6 percent in 2012. Even so, the research firm estimates that the industry will lose more than $300 billion in revenue due to slower spending during  the next four years.

(Andy Patrizio, a reporter for Internetnews.com, contributed to this report.)

TAGS: server,virtualization,IT spending,datacenter,research

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