Analysts Bid Good Riddance to IT Recession

Published: January 18, 2010

by Timothy Prickett Morgan

The long line of IT analysts and market researchers who want to say good riddance to the IT recession that has been under way since early 2008 has begun to form, and Computer Economics and Forrester Research are at the front of the line making their prognostications. While the IT spending environment seems to have brightened, it is going to be a while, it seems, before we return to anything like normal--if late 2007 and early 2008 were normal.

According to the Outlook for IT Spending and Staffing in 2010 report put out by Computer Economics at the end of December, based on detailed surveys of 139 IT shops in the United States and Canada, IT managers are anticipating, when you average them out, a 2 percent increase in operational budgets in 2010. Some 52 percent of the IT organizations polled said they expected to increase their operational budgets in 2010, with 32 percent saying they would hold tight; only 16 percent of those polled said they were making cuts.

Computer Economics says that based on its two decades of polling IT shops and modeling IT spending based on what those shops say, when more than half of the base says they are not going to increase their IT operational budgets, then this is a good indication that the economy is in a recession. It certainly was in 2004, when the median annual growth in IT operational budgets stood at a big zero and the economy at large and the IT sector within it were still in recession after the mess in 2000, 2001, and 2002. In 2005, median operational budgets among those polled by Computer Economics rose by 2.5 percent, followed by 4.7 percent growth in 2006, 5 percent in 2007, and 4 percent in 2008. In 2009, the median worked out to a big fat zero again. So 2 percent is looking pretty good. But only by comparison, really.

"Based on our 20 years of tracking IT budgets, all signs point to a recovery year," explained Frank Scavo, president at Computer Economics in a statement accompanying the firm's forecasts. "IT executives are prepared to make mid-year adjustments, up or down, based on the strength of the recovery, but right now it appears we see a year of stabilization in IT spending and staffing."

In terms of IT staffing, only 7 percent of those polled said they would be making cuts in 2010 and 39 percent said they would be adding people this year.

Over at Forrester Research, the company has a larger polling base and does more frequent revisions of IT spending forecasts, and the report that Forrester released last week showed bigger growth numbers. But Forrester is looking only at spending on hard and soft IT wares by companies, not their entire IT budget (which includes staff and other operational costs).

"The technology downturn of 2008 and 2009 is unofficially over," said Andrew Bartels, Forrester's vice president and principal analyst in a statement accompanying his projections. "All the pieces are in place for a 2010 tech spending rebound. In the U.S., the tech recovery will be much stronger than the overall economic recovery, with technology spending growing at more than twice the rate of gross domestic product (GDP) this year."

Forrester is expecting that nominal gross domestic product in the United States will rise by 3.1 percent in 2010, but that IT spending in the States will rise by 6.6 percent this year to $568 billion. While this sounds lovely, it is helpful to remember that IT spending in the United States fell by 8.2 percent in 2008 and was rising by nearly that amount in 2007. We have more ground to make up to get back to where we used to be. Ditto for the global IT market as reckoned by Forrester in U.S. dollars, up 8.1 percent this year to a little more than $1.6 trillion (but only up 5.6 percent when reckoned in local currency).

IT growth is going to be strongest in the United States this year, according to Forrester's economic models, but the strengthening U.S. dollar is going to make those euros, yuan, yen, pounds, rubles, rupies, and so on spend a lot further when the major IT players located in the States bring the dough back home to bake it into their books. When reckoned in dollars, IT spending in sales in Western and Central Europe is expected to increase by 11.2 percent; Canada will see 9.9 percent growth, thanks to a fairly stable oil economy based on tar sands and America's insatiable appetite for crude. Forrester expects the Asia/Pacific region will see 7.8 percent growth in IT spending and Latin America will not be far behind at 7.7 percent. However, Eastern Europe, the Middle East, and Africa will post only a 2.4 percent increase in IT spending this year, which means in local currencies, these markets are still declining.

Forrester is expecting that spending on computer hardware and software will lead the way in 2010, with hardware spending up 8.2 percent and software spending up 9.7 percent. Communications equipment makers will see an increase in spending of 7.6 percent, IT consulting and system integration services will rise by 6.8 percent, and outsourcing services will exhibit 7.1 percent growth.

We are apparently seeing a new IT boom based on smart infrastructure. (Perhaps we could allocate some money for smart politicians?)

"We are entering a new six- to seven-year cycle of IT growth and innovation that Forrester calls Smart Computing," explained Bartels, borrowing a marketing campaign from Big Blue. (You'll be getting a call for trademark infringement from Cravath, Swaine, and Moore any day now. . . . ) "New technologies of awareness married to advanced business intelligence analytics make computing smart. Smart Computing rests on new foundation technologies such as service-oriented architecture, server and storage virtualization, cloud computing, and unified communications. 2010 marks the beginning of this next phase of technology advancement."

While this sounds like a pipe dream, there is little doubt that IT departments, keen on showing the value of IT to business managers, are going to be passing around the pipe so everyone can have a toke on it. This is how the world goes round. The thing is, computing does evolve, even if a lot of the promises--and smart computing is just one in a long line--do not usually pan out exactly as planned, budgeted, and built.

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