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Gartner: IT services spending remains strong

Homeowners are struggling to pay their mortgages and gas prices are going through the roof, but IT services spending is chugging right along.

Spending on IT services worldwide is forecast to top $1 trillion in 2012, according to research consultancy Gartner Inc. It's another piece of evidence that the IT industry remains buoyant, if not airborne, amid tough economic times in the U.S.

In a new forecast published this month, Stamford, Conn.-based Gartner is predicting 9.5% growth worldwide in U.S. dollars in 2008, up from the 6.8% predicted earlier in the year. The prediction is based on strong first-quarter results from several major vendors of IT services, but with a qualification: Some of the increase is due to the decline in the U.S. dollar rather than to a dramatic uptick in demand.

Still, compared with what's happening in real estate or financial services, IT is more than holding its own. And why shouldn't it, said Gartner analyst Kathryn Hale, an author of the report.

"When people say you need information to compete, they're not talking about putting pencil to paper or talking to somebody. That information you need is in somebody's computer somewhere," Hale said. "Why would IT spending be just the thing to cut?"

This economic period, however unsettling, continues to be very different for IT from the dot-com crash of 2000-2001, when IT budgets took a beating after years of undisciplined spending, Hale said.

Fiscal discipline, including the growing trend of using cheap overseas labor, has meant that IT is no longer the first place companies look to cut costs. Indeed, many projects spearheaded by IT -- like outsourcing and data center consolidation -- are showing the industry to be skillful at saving money. And until things started getting really bad in March, CIOs increasingly were being asked to go out and find ways to make money, Hale said.

"Progress is dependent on IT," she added. Companies might be opting not to upgrade PCs, "but to stop automating your supply chain is not a recipe for long-term success."

Lessons learned from 2000-2001

Back in March, as economic conditions worsened in the U.S, the Gartner team warned that the growth rates it had projected for IT services in 2007 and 2008 could drop by up to 2 percentage points. Market data coming in since then, however, indicates that spending on IT services worldwide actually exceeded the forecasts for 2007, jumping 10.5% to $748 billion. Data strongly suggests that 2008 will bring more of the same.

For the U.S. market, the numbers are not quite as robust but still solid, showing a compound annual growth rate of 7.4% for the next five years.

What do the numbers say for CIOs? The continued strong demand for IT services does not suggest major cuts in IT budgets, the report concludes. A CIO survey Gartner conducted in February and March showed spending plans down slightly, but still registering positive growth. The finding was echoed in the Duke University survey of CFOs published around the same time, which predicted a modest decline in IT budget growth of 3.2%, down from the 5.4% predicted at the end of 2007.

When people say you need information to compete, they're not talking about putting pencil to paper or talking to somebody.

Kathryn Hale, analyst, Gartner Inc.

Members of a panel of 200 CIOs surveyed in the second quarter of 2008 by Citi Investment Research said they expect IT spending budgets to be flat or experience up to 1% growth in 2008. The study was published July 10. Reflecting the more cautious backdrop, the CIOs told Citi they expect to spend less than 19% of their IT budgets on new projects -- down from 23% in the second quarter of 2007 -- and 20% of their budgets on capital projects, also down slightly from the 22% cited for the same period a year ago.

Gartner's Hale said she had not heard of any sharp reductions in IT staff. That would seem to bear out recent U.S. Department of Labor statistics showing record low unemployment and an apparent balance right now between supply of IT workers and demand for services explored in our TotalCIO blog this month.

At the large Gartner outsourcing conference in May, some providers of IT services said CIOs were putting projects on hold, or reallocating budgets, rather than slashing spending. And even though IT department budgets are under pressure in the U.S., providers told Gartner that their actual spending on IT services is up at many places, because contracts for things like business process outsourcing often originate outside the IT department in the business units.

"There are plenty of other places where companies can look to cut costs, like real estate or hiring. In fact most of the expense at companies is not coming from their IT departments," Hale said.

Let us know what you think about the story; email Linda Tucci, Senior News Writer.

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