Forum: US no longer determines direction of IT spending

Asia Pacific growth is becoming the driving force behind IT investment

A recent survey by research firm Gartner confirms what has been an inexorable trend in business in the past decade or so — the decoupling of the US economy and those of other major nations and regions.

The Gartner report polled 1,000 CIOs in the US, the EU and the Asia-Pacific region and found that while most US CIOs are facing reduced or flat budgets this year, the majority of their peers in Europe and the Asia-Pacific will get bigger ones.

The European and Asia-Pacific CIOs’ positive budget expectations helped push the average forecast IT budget increase to 3.3% across the 1,000 CIOs surveyed.

According to Gartner, IT budgets are growing at 3.86% in Europe and 5.98% in the Asia-Pacific region and by somewhat less in the US, thus arriving at the global average growth forecast of 3.3%.

Mark McDonald, head of research for Gartner’s executive programmes, said during a teleconference held to discuss the survey that “The reason we believe IT budget growth will remain stable globally at 3.3% is because Europe and Asia-Pacific are experiencing accelerated and additional growth.”

McDonald went on to say the current economic conditions in the US when viewed from outside are seen as “a US-only phenomenon”.

While “decoupling” has become something of a catch-phrase to describe the alleged decreasing dependence of the rest of the world on the US economy, the Gartner research shows that in IT’s case decoupling really is happening.

More evidence of decoupling can be seen in the latest results of US-based IT vendors.

For example, in Oracle’s recently-released third-quarter results, close to half its revenue came from outside the US — homegrown revenue was $US2.7 billion, while $US1.87 billion came from Europe and US$771 million from the Asia-Pacific region.

Ongoing growth in other parts of the world will shore up the revenues of such vendors at a time when their home market is stagnating.

Of course, the economic carnage in the US is related to the sub-prime mortgage fiasco and securitisation of debt, and is mainly affecting the financial services sector. IT vendors and other businesses outside the financial sector aren’t so badly affected.

On the other hand, it’s unlikely that IT vendors’ customers in the financial services sector are going to spend as much on hardware, software and services this year as previously, and consumers are likely to cut back their spending on Blackberries, cellphones, PCs and laptops.

So, with the extent of the fallout from the sub-prime mortgage crisis in the US not yet known, but certainly affecting their home market, US-based IT vendors are relying more and more on revenues from overseas operations.

New Zealand makes up a tiny proportion of their revenues, but the local branches of some US vendors have posted strong results lately. For example, Oracle doubled its local profit for the year to May 2007 (the most recent period from which results are available) compared with the year to May 2006, and Microsoft reported record revenue and a 20% increase in proft for its most recent local reporting period compared with last year, though it’s published figures do not necessarily reflect its local sales performance.

With such growth here and elsewhere in the Asia-Pacific, it’s clear that our region is making a major contribution to the global IT industry.

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Tags GartnerIT spendingdecoupling

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