Given the drumbeat of disquieting financial news, the IT sector has got to be waiting for the first shoe to drop...
on its little economic miracle. It's probably not happening this week.
Two reports out in recent days -- an IT spending forecast from Gartner Inc. and a "hot IT jobs" analysis from Forrester Research Inc. -- suggest the IT sector continues to show resilience in this U.S.-led recession.
Gartner said Monday that worldwide IT spending will exceed $3.4 trillion in 2008, an 8% increase compared with 2007 spending. But the Stamford, Conn.-based research firm qualified this by pointing out that the decline in the dollar accounts for much of the growth. Expressed in constant currency, the increase in spending is more like 5%. And down the road, that growth rate is expected to slow, the report warns. But for now, "the fundamentals are strong," said Jim Tully, a vice president and distinguished analyst at Gartner.
Software and services account for much of the growth. Software spending worldwide is on track to rise 10% in 2008 compared with 2007. As reported earlier, spending on IT services ranks a close second, posting an increase of 9.5%. Year-over-year spending on telecom grew 8%; computer hardware, 7%.
For somebody sitting in North America, the strong forecast might ring hollow, agreed Tully, who is based in the U.K. But the U.S. is not the world, he said, and emerging regions, including Asia-Pacific, Latin America, the oil-soaked Middle East and even Africa continue to drive growth in the IT market. Tully pegged the Middle East market at $220 billion, hardly small change.
Meantime, the shift to cloud computing -- from accumulating IT assets to procuring computing over the Internet -- does lower spending on some types of equipment but also represents "considerable upside potential," Tully said.
"If you were to look at this cold, you see all of this grim economic news that keeps coming out -- inflation rising, energy costs rising, GDP growth slowing -- and [you] have to wonder," he said. "And yet, when you look at what's happening with the big hitters in the IT space through June -- IBM with some 13% revenue growth over last year, Microsoft up 18%, Oracle up 25% -- those are big growth figures."
Since June, the outlook for some technology providers has darkened, Tully said. But he added that companies with the global reach and products to take advantage of growing emerging markets should continue to fare well.
Telecom about 60% of IT spend
The computer hardware market, which includes printers and enterprise networking communication equipment, continues to be a drag on the market, Tully said. The main area of hardware growth is PCs, which account for 60% of total hardware spending. PC growth was more robust than expected, he said, coming largely from Asia-Pacific and Europe and driven in part by the high demand for mobile PCs.
"The higher prices of these products result in increasing revenue per unit and a boost to the overall market," Tully said.
IT services and telecom is where the big money is, representing 70% of the total IT market spending. Indeed, the telecom sector accounts for almost $2 trillion of the predicted $3.4 trillion to be spent on IT in 2008.
The impact of cloud computing on IT market growth is unknown at this point, Tully said. The shift in ownership of IT assets from companies to service providers means these assets in general will be utilized with greater efficiency than when they were owned by individual businesses, and the overall effect on the market will be neutral.
"But, of course, with cloud computing you also get this tremendous upside," Tully said. At this stage, though, that upside is difficult to quantify. "The existence of all these computing resources in the cloud could well lead to huge benefits from all kinds of growth that, to be honest, we don't know about."
Growth in enterprise applications driving jobs, too
According to a list of the 16 hottest roles in IT, compiled by Cambridge, Mass.-based Forrester, strong spending on software and services correlates with pockets of strong demand for certain IT functions. The growth in enterprise applications, as well as new technologies for aligning IT and business, such as business process management, and the need to share data across the enterprise are all driving demand for jobs, according to Forrester analyst Marc Cecere.
Take, for example, spending on the management of structured and unstructured data, an area where Forrester has seen an increase this year, he said.
All these computing resources in the cloud would lead to huge benefits ... that we don't know about yet.
Jim Tully, vice president and analyst, Gartner Inc.
"That affected roles such as a business analyst, and roles associated with data and content management. It also affected those roles connected to architecture -- defining standards, defining the direction of IT," said Cecere, who compiled the jobs ranking with consultant Laurie Orlov.
Forrester also identified a correlation between increases in services spending and IT roles, particularly in the area of "transformational" systems integration, Cecere said. An SAP implementation, which effects a big change in business processes, is an example of transformational systems integration. So vendor management is a hot role.
"It also affected architecture, because enterprise architects are involved in the approval of those vendors and verification that they scale, as well as with business process redesign," he said. Big systems integrations also often require outside help from IT providers.
"Anything to do with data," the area where Forrester has seen the biggest uptick, is pushing jobs, Cecere said. This is particularly so at large companies, which "want to integrate their data more than they ever did before."
For CIOs, a word to the wise: Forrester and others believe macroeconomic forces will eventually rain on the IT parade, but companies are still too busy using IT products and services to cut business costs and effect efficiencies to throttle down just yet, Cecere said. He advised that CIOs take inventory of the skills they need, identify the gaps, cultivate some of those roles internally and make plans to rent the rest.
Let us know what you think about the story; email Linda Tucci, Senior News Writer.