IDC Cautiously Reaffirms IT Spending Projections for 2008

Published: May 21, 2008

by Timothy Prickett Morgan

When something bad finally happens, at least you don't have to be anxious about it any more. But that's about the only good thing about bad things happening. While anxiety is no fun, it is safe to say that IT managers and the bean counters who control their budgets much prefer that to the kind of panic that grips a national economy or even the global economy. When businesses are anxious, they cut IT spending back. In the case of 2008, so far that seems to mean slower growth, not actual decline.

That's the projection that the market researchers and economists at IDC made last week in their Worldwide Black Book Q1 2008 IT spending projections. The company says that current conditions in the U.S. economy might be a bit dicey, but it reaffirmed its projections for a 4 percent spending increase for information technology in 2008, which is not as good as the 6 percent growth the IT sector had in the States in 2007. The weakening real estate and financial markets in the second half of 2007 hurt IT spending in the latter six months of the year, and continuing issues are holding back spending increases this year. IDC is confident enough in its data to reaffirm its projection that hardware spending will rise by 2 percent in the States this year, with software spending up 7 percent and services spending rising 5 percent.

Thanks to the falling U.S. dollar and the preference of IT suppliers to be located in America even though they do a lot of business overseas, spending internationally on IT is expected to look more robust than it is in local currencies. And while IDC now says that it is seeing indications of weakening demand in Europe and Asia in some areas, IDC is now forecasting a 5.7 percent increase in IT spending globally compared to the 7.2 percent global spending increase in 2007. Back in February, the projection was for 5 percent higher global IT spending in 2008 compared to 2007. Oddly, IDC says that it has lowered its forecast for growth in IT spending in Western Europe to 4.1 percent and in Asia to 5.4 percent, but the global market projection is 7/10ths of a percent higher than the projection from three months ago. Spending in Russia and the Middle East (where India is located on the IDC globe) is still roaring ahead at double-digit growth.

These projections are predicated, of course, on the idea that the economic stimulus package initiated earlier this year by the Bush Administration and just going into effect now keeps the U.S. economy humming and citizens consuming, which will have the effect of keeping all those foreign manufacturers and distributors a-going. The projections also assume there is not some catastrophe looming on the horizon.

"The global economy is still faced with a variety of risk factors," explains Anna Toncheva, an economist at IDC. "Intensifying financial instability, inflation pressures, and global imbalances have lead to increased synchronization of the business cycles between the U.S. and the rest of the world over the first quarter of 2008. When business cycles are closely tied together, macroeconomic shocks tend to spread faster from one area to another. And though the current housing and financial crisis in the U.S. seems comparable only to the mildest cases in world history, the compression on global economic activity will probably linger over the course of the next six to seven quarters and will inevitably discourage investment plans."

And that is why IDC is watching very carefully for signs of a slowdown in the IT sector, where we all get our paychecks.

"In a downside scenario, we could be at the beginning of a classic IT spending slowdown," says Stephen Minton, vice president of worldwide IT markets at IDC. "In every previous IT recession, the first sign of weakness has shown up in a softening of PC shipments. This has then transmitted to other hardware sectors within one quarter, to software license sales within half a year, and to the IT services sector if the recession persists for more than three quarters. Until we deviate from that course, we must closely monitor all other sectors of the IT and telecom industries for indicators of a further round of spending cuts. While this downturn will not resemble 2001 in terms of scale, it could yet be similar in terms of timing."

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