IT spending in US to increase: Forrester

Wall Street fallout won't affect wider IT buying, firm says

Despite the turmoil on Wall Street, US spending on IT will increase more than previously expected, though the outlook for 2009 is dimming, according to Forrester Research.

The slowdown that Forrester, as well as many other analyst fiorms, forecast would hit in the first half of 2008 is now expected to occur in the second half of the year and the first half of 2009.

The economic crunch will not completely blow away IT budgets, however.

"The tech market is not declining," says Andrew Bartels, vice president and principal analyst at Forrester. "This is not a replay of 2001/2002."

The market research company has revised its projections for 2008-09 US IT spending growth, however. Forrester now says spending will grow at 5.4% from last year, up from its May projection of 3.4%. Meanwhile, its forecast for 2009 calls for 6.1% growth, down from its previous forecast of 9.4%.

In absolute terms, US spending on IT will hit US$572 billion (NZ$874 billion) this year and US$606 billion next year, Forrester says.

This month's implosion of investment banks including Lehman Brothers and Merrill Lynch will have some effect on IT spending, but what is more worrisome is the general economic climate, according to Bartels.

While the financial sector as a whole accounts for about 18% of US spending on IT, Wall Street, including investment banks, accounts for about 6%-8%, Bartels said. While that is still a large slice of total IT spending in the US, the failure of several large banks, however big they are, is not enough to cause even that portion of IT spending to disappear, Bartels says.

When Merrill Lynch is absorbed into Bank of America, for example, the money Merrill was spending on IT will not vanish, Bartels says. "There may be certain trading systems that will need continued support, for example," he says.

And as pieces of Lehman are sold off, the same holds true, as some of the bank's IT systems continue to be supported at the acquiring companies.

But the bank failures do have a ripple effect, Bartels says. "The banking crisis exacerbates the stresses and strain on the rest of the economy," he says. As credit markets tighten up, for example, it becomes harder to borrow money for corporate capital expenditures. As it also becomes harder for homeowners to borrow money, consumer spending can be affected.

Forrester expects growth in IT spending to slow down in the fourth quarter of this year and the first half of 2009, and then pick up again. "We expect growth of 1, 2, or 3% for a few quarters," Bartels says.

Growth in spending on PCs and peripherals will decline from 5.5% last year to 2.5% this year, and bounce back to 6.6% growth in 2009, according to Forrester. Spending growth on communications equipment will increase from 4.8% last year to 6% this year, and decline to 3.7% next year. Software spending growth will decline from 11.9% last year to 7.1% this year and hit 7.9% next year. Growth in spending on IT services, not including outsourcing, will increase from 5.1% last year to 5.8% this year and 6% in 2009.

IT purchases can not be postponed indefinitely, Bartels says. The total US spending on IT in 2010 should increase by 10.1%, Forrester said.

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Tags managementforresterIT spendingUnited StatesAndrew Bartels

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