IDC Tweaks Global IT Spending Estimates Downward for 2008
February 25, 2008 Timothy Prickett Morgan
The analysts at IT market researcher IDC have taken a look at the state of the global economy and have decided that their initial estimates for spending in the information technology area in 2008 were just a tad bit rosy. And therefore, IDC has decided to lower its forecast for IT spending this year, despite the explosive growth in emerging markets and mostly because of a spending slowdown in IT in particular and in the overall economy in the United States.
“While there is still debate over the severity and length of a U.S. economic slowdown, we do know that the IT market will not escape unscathed from any significant downturn,” explained Stephen Minton, vice president of worldwide IT markets at IDC, who released the revised IT spending projections. “IT vendor performance will likely be buoyed to some extent by growth in emerging geographies, and perhaps by a weakening U.S. dollar, but we have also detected some signs of softer market conditions in Europe and Japan. Any recession in the U.S., meanwhile, would have repercussions across most major economies and IT markets.”
We’re all connected, as New York Telephone, the regional Bell Operating Company that is now at the heart of Verizon, used to say in its advertisements. The world is not flat–it is a globe, and that presents a single, unified, continuous yet bounded space on which economies can affect each other at different angles all at the same time. (I really dislike the saying “the world is flat,” since it builds the wrong metaphor about how the world is configured. Soda goes flat. Tires get flat. Kansas is flat. The world is not and never will be flat.)
Only a few weeks ago, as part of a broader set of predictions that IDC made for 2008, the analysts at the firm said that “economic uncertainties and downside risk” would curtail IT spending in the United States and in other regions this year, and the initial prediction IDC made about IT spending growth was that it would be between 5.5 percent and 6 percent higher than 2007’s levels. This is not as good as the 6.9 percent IT spending growth 2007 had over 2006, obviously, but it is nonetheless a lot better than the 2.3 percent decline in 2002, which I said a month ago when IDC made its forecasts was when the soap from the dot-com bubble bursting was still in our eyes and the economies of the world were still in shock from the 9/11 terrorist attacks. Growth is always better than decline.
But here we are only a few weeks later, and IDC is taking another stab at the numbers, lopping off some of that growth, and adding a bit more precision to its forecast. Specifically, IDC is now saying that worldwide IT spending will rise by 5 percent in 2008, reaching $1.38 billion, and says that in the United States, IT spending growth will moderate at 4 percent, compared to 6 percent growth in 2007, which weakened significantly in the second half of 2007 because of various (and related) issues in the real estate and financial services markets.
IDC published its most recent forecasts in its Worldwide Black Book, and says that the lowered forecast is a reflection of the change in macroeconomic indicators and projections since IDC took a stab at projections in the fourth quarter of 2007. “The general reduction in anticipated growth for the U.S. economy has translated into forecast reductions across most IT market sectors. Additionally, historical correlations and recent IT buyer surveys confirm the view that market conditions are likely to weaken in the coming months,” IDC said in its report, and added that these macroeconomic indicators are the biggest source of variability in the models it uses to make its forecast. As such, any weakening in the macroeconomic sphere could compel IDC to lower its IT spending forecasts further, and a recovery in the U.S. and global economy could make IT spending better in the second half than IDC currently projects.
“The economy is a big source of unpredictability at the moment, but most current indicators are pointing downwards,” said Anna Toncheva, an economist at IDC who also worked on the report. “The government stimulus package will not have a dramatic influence on IT investments this year, and we are still awaiting the impact of more subprime mortgages resetting at higher interest rates in the next six months.”
Toncheva was referring to the law created by the U.S. Congress and signed by President Bush on February 13 to pump $168 billion into the U.S. economy by giving about $120 billion in refunds to families by May, with the remainder being tax incentives for businesses to make investments this year despite the uncertainty in the economy and a partial bailout for the housing industry that lets Freddie Mac and Fannie Mae buy up bigger mortgages than was possible in the past. (Maybe being able to buy up a larger number of mortgages was more important?)
As part of its downward revision for IT spending, IDC made the following projections.
If the United States catching the economic flu can make China catch a cold, we really are connected, aren’t we?