Gartner Inc. revised its IT spending forecast significantly downward Tuesday, saying the "speed and severity" of the business and consumer response to the current economic crisis is causing a slowdown in the IT markets that will be worse than in 2001, the last time IT spending declined. The slowdown will likely last through 2010.
Gartner's downward adjustments include all four IT sectors -- hardware, software, IT services and telecommunications. But by far the most dramatic revision is for hardware spending, which Gartner now predicts will plummet nearly 15% this year over last year, compared with an earlier forecast of a 4% reduction. (SearchCIO.com's own IT budgets survey in January also saw hardware as hardest hit.)
IT services spending is expected to slip 1.7%, and telecommunications to drop by 3%, compared with earlier growth forecasts of 1% and 4% respectively. Enterprise software spending will be flat at 0.3%, down significantly from the nearly 7% growth Gartner had projected earlier.
The 2009 declines exceed those in 2001, when the collapse of the Internet spending bubble caused IT spending to drop 2.1%.
"What we're seeing now is a general slowdown in demand of products and services across the board because of the economic uncertainty brought about by the financial market crisis, and from which IT spending is not immune," said Richard Gordon, research vice president and head of global forecasting at Gartner, in a Web conference yesterday.
In the hardware sector, the PC market will be hardest hit, with dollar spending down 20% in 2009 as companies extend the life span of their desktops for easy savings. Storage spending will be least affected, driven by the unstoppable growth in digital data. Server virtualization and server-based client computing are expected to grow in 2009 and 2010, Gordon said, as companies pursue alternative hardware strategies.
The dramatic change in software spending, which parallels gross domestic product growth, became apparent suddenly in fourth quarter 2008 after a strong first nine months of the year, Gordon said, when income statements of the top 50 software vendors showed less than 4% sales growth, the lowest quarter-over-quarter uptick since 2005. The majority of the enterprise software market is still anticipating some growth in 2009, Gordon said, but the market's largest segments -- including operating systems, office suites, middleware and digital content creation -- are forecasting negative growth rates.
Technologies that can help cost optimization, such as Software as a Service, IT asset management, virtualization capabilities and open source, should benefit. Those segments are too small to change the software market's growth prospects, however, said Fabrizio Biscotti, a research director at Gartner.
Companies continue to spend on security software, with the result that this $13 billion segment will see a double-digit growth rate this year, Biscotti said.
The relatively modest declines in the IT service market are due to the fact that much of the spend in this area goes to outsourced mission-critical services and for leveraging IT to improve competitive positioning, Gordon said. "Spending on services can safely be cut only in moderation." Business process efficiency and cost reduction are focus areas for companies, suggesting that IT services will flourish in good times and bad.
Companies are still shelling out for product support services, the least-affected area in Gartner's revised forecasts. Outsourcing is a mixed bag, with companies reluctant to sign on for long-term deals but still looking to outsourcing to cut IT and business process services.
Gartner is not alone in revising its IT spending forecast downward. IDC revised its worldwide IT spending projections downward in February, though not as dramatically. The Framingham, Mass., firm is now predicting growth of just 0.5% year over year in 2009 in constant currency, down from a November 2008 IT spending forecast of 2.6% growth. Cambridge, Mass.-based Forrester Research Inc. made a course adjustment in December, cutting IT spending growth to 1.6%, down considerably from the 6.1% growth predicted earlier.
As for the light at the end of the tunnel: "Our fundamental assumption is that the economic downturn in 2009 will continue to affect the IT spending next year in 2010. But by 2011, mid-single-digit annual growth should return to the market," Gordon said.
Let us know what you think about the story; email: Linda Tucci, Senior News Writer