Global IT Spending Slowing Down

“Slowing U.S. economy will affect the rest of the world’s spending on IT products and services in 2008.”

IT might finally start feeling a sting from the slowing U.S. economy. In a new report released Feb. 11, Forrester Research found that the sluggish U.S. economy will start affecting the amount of money IT departments will be spending on products and services in the next 12 months.

While the worldwide IT market will total $1.7 trillion in 2008, Forrester found that global purchases of IT products and services will grow 6 percent during the year. Originally, Forrester predicted growth of 9 percent. Spending in the United States will hit 2.8 percent, down from the original forecast of 4.6 percent. To date, IT has not felt the crunch of a weak U.S. economy.

In 2007, Forrester found that global IT spending grew 12 percent worldwide and 6.2 percent in the U.S.

Andrew Bartels, an analyst with Forrester, said the firm revised its number after retailers, such as Wal-Mart, reported less consumer spending in the fourth quarter holiday season and after reviewing recent reports that the U.S. economy lost jobs in January. These and other factors, such as falling real estate prices and higher prices for gasoline, mean less consumer spending, which will eventually affect business spending.

"U.S. consumer spending has been slowing down and consumer spending represents about two-thirds of the U.S. economy and about one-fourth of the world's economy,"

With less consumer spending to spur the economy, along with the tightening of the credit market following the problems in the mortgage market, enterprises and smaller businesses will likely spend less on IT goods, services and consulting in the next 12 months. Bartels said most companies will cut down on big-ticket hardware spending—like PCs, servers and storage—but continue to invest in software.

Software spending is not as discretionary

"Companies do not want to cut back on spending on software for security, which they see a prudent investment. Also, software spending is seen a way to be more efficient and a way to save costs in the long run. With virtualization software, you're cutting down on the amount of servers a business needs to buy."

Overall, hardware spending will increase about 4 percent in 2008 compared to 12 percent in 2007, and software spending will hit about 8 percent compared to 11 percent last year.

Although Forrester revised its figures downward, Bartels noted that IT spending will continue to grow in 2008. However, he said that vendors could not expect the same type of profit returns they experienced in the last year. For example, Cisco Systems reported Feb. 7 that its growth for its third fiscal quarter would be 10 percent, but that was less than what Wall Street had been expecting. In the coming few weeks, Bartels said quarterly reports from Hewlett-Packard and Dell should give industry watches a better view of the economy. While HP has a large overseas business that might help its quarterly report, Dell sells most of its products in North America and its report could give a clearer indication of the strength of the U.S. economy.

Source: Forrester Research, e-Week