IT Spending Forecasts Slashed by Gartner, Forrester
April 6, 2009 Alex Woodie
IT analyst groups Gartner and Forrester Research last week released pessimistic reports predicting a decline of 3 to 4 percent in IT spending, both here and abroad, for 2009. Spending on servers and other pieces of hardware will be clobbered with a 15 percent decline, according to Gartner, which says the spending slowdown is exceeding the IT spending repercussions of dot-com bubble burst back in 2001.
According to Gartner’s forecast, global IT spending will total $3.2 trillion this year, a 3.8 percent decline from 2008, when IT spending reached $3.4 trillion. Hardware sales will plummet to just $324 billion this year, while spending on software will actually strengthen by a three-tenths of a percent to $223 billion. Spending on IT services will drop about 1.7 percent to $796 million, while spending on telecommunications products and services will decline nearly 3 percent to about $1.8 billion.
Forrester, which just looked at projected IT spending in the United States, is predicting a 3.1 percent decline this year, to $537 billion from $554 billion last year. Hardware purchases by American businesses and governmental agencies will account for just $99 billion, a 6.7 percent drop from 2008. Software spending will also drop, by four-tenths of a percent, to $166 billion, Forrester says. Unlike the rest of the world, American investments in communications equipment will plummet by 7.7 percent, the group found. The only bright spot (if it can be called that) in the forecast was a 2.1 percent increase in IT outsourcing.
The obvious factor cited by both groups as driving the spending slowdown is the worldwide credit crunch. “In many ways, the biggest factor impacting the tech market is not the recession–it’s the breakdown of the financial system (which both caused the recession and is exacerbating it),” writes Andrew Bartels, the Forrester analyst who wrote the March 31 spending forecast. “Companies large and small have been shut out of credit markets, and even those that still have access to bank loans, markets for commercial paper, or corporate bonds often have had to pay much higher interest rates.”
It’s not just belt-tightening by businesses, but consumers too, that is driving demand for IT products down to levels not seen in years, writes Richard Gordon, a Gartner vice president and head of its global forecasting center. “The speed and severity of the response by businesses and consumers alike to these economic circumstances will result in an IT market slowdown in 2009 that will be worse than the 2.1 percent decline in IT spending in 2001, when the Internet investment bubble burst.”
The latest predictions mark a sharp turnaround for the two groups, which were forecasting an increase in IT spending last fall. Back in late October, when the markets were in free fall and the governments were moving swiftly to save failing banks, a Gartner prognosticator said the worst case scenario for 2009 was a spending increase of 2.3 percent, down from earlier projections of a 5.8 percent jump. With the GDP in the United States currently dropping at an annualized rate of about 6 percent for the last six months, it was apparently time for Gartner to swap out a “plus” sign in front of the rate-of-growth figure for a “minus” sign.
Forrester’s crystal ball missed the rapid deterioration of fortunes, too. Last September, the group was predicting a 6.1 percent jump in IT spending in the U.S. for 2009. Even by December–when the economy had imploded, carmakers were on the brink, and hundreds of billions of dollars in bailout money was being distributed–Forrester still had a positive take on 2009 spending, predicting a 1.6 percent increase.
My bad, Forrester says. “Unfortunately, that bleaker outlook now looks more likely than the relatively mild and relatively short recession we had assumed in December 2008,” Bartels writes.
The only IT analyst group that hasn’t put away its black pen is IDC, which predicted spending growth of less than a percent about a month ago. However, when sales and economic data for the first quarter come out, even IDC may be forced to further concede the bleakness of the situation and “go negative” like its two competitors.
The good news (yes, there is still such a thing as good news, Virginia) is that Forrester is looking for a recovery by 2010, when GDP is expected to continue its upward march. Even by the end of 2009, the worst should be over with, and IT spending in this country should start to increase. But it won’t go positive on an annualized basis until 2010, when Forrester sees a 6.6 percent increase in IT spending compared to 2009.
“There is a light at the end of the tunnel. Demand has been delayed but not cancelled,” Bartel writes. “The subsequent 2010 recovery will be broad-based, benefiting all sectors of the tech market.”
But don’t look for a fast turnaround on the world stage, Gartner warns. “IT vendors should plan for business and consumer spending to be curtailed during 2009 and for a slow, prolonged recovery during 2010,” Gordon writes. “At the same time, they should be alert to opportunities to help buyers with cutting costs, complying with new government regulations, and taking best advantage of government rescue plans.”