A Look at IT Spending

Analysts expected there to be slowdown in IT spending this year, and while that has held true, spending is down from what it was a year ago, indicators show that the worst may be over and that it might not be as bad as was anticipated. These conclusions were recently published in independent research by both Forrester and IDC Research. Forrester sums up there findings thusly, “Growth in U.S. purchases of IT goods and services clearly slowed in Q3 and Q4 of 2006, and that slowdown continued in the first quarter of 2007. However, the good news is that we think the worst of the slowdown has already happened and that the rest of 2007 will see a steady improvement.”

Forrester’s analysis is based on the tracking of two primary indicators, “U.S. Department of Commerce data on business investment in computers, communications equipment and software as well as U.S. revenues of 40 large IT vendors.” Both Forrester’s indicators showed an increase in IT spending in the first half of this year. A change there may be, but it is anything but extraordinary. Department of Commerce data from the first quarter of this year “on business investments in IT goods, such as computers and peripherals, software, and communications equipment, showed 4 percent growth on a year-over-year basis.” (For the second quarter of 2007 the number moves up to 6 percent.) Vendor data from Forrester reflected the same, “growth of 3% in US revenues from the sales of computers, network equipment, and software in Q1 2007 compared with Q1 2006.”

Both Forrester’s data sources indicate that one of the few bright spots in the overall slow growing market is software sales. In this area Department of Commerce data shows a growth rate of 7 percent, vendors state an 11 percent growth rate. This sunny spot was also noted by IDC. IDC says of recent growth in the software sector, “The software market continues to drive overall IT industry growth, with total software spending now expected to increase by 9 percent this year.” The analyst firm also mentions the disruption that could be caused by a possible ‘wild card’ in the software realm, the rise of Web-based software: “Recent surveys have indicated surprisingly high levels of interest in on demand software among large firms in addition to the SMB sector.”

IDC also says that PC sales have helped IT growth turn around. “PC demand has remained a bright spot, with shipments slightly beating forecasts in the first quarter.” According to IDC the unexpected rise in PC sales is due in large part to Windows Vista upgrades and PCs in “emerging geographies.” However, laptops sales are now cutting into those of desktop PCs, so overall sales are only slightly ahead. While the increase in laptop sales and corresponding decrease in PC interest do not cancel one another out it is leading to a, “more moderate rate of overall price deflation than in recent years.” In any case, the analyst firm predicts that PC spending is set to increase by 8 percent this year.

Both firms also make mention of the server market. As for servers Forrester says, “sales continued to show little or no growth, with just a 1% increase.” IDC offers some more data as to the specifics. They note that, “growth continues to migrate toward lower-cost volume systems at the expense of high-end, proprietary mainframes and servers.” In the end the two agree in their assessment, IDC extends the prediction out to 2011but agrees that growth will be almost nil, a mere 2 percent.

The forecast in general is relatively optimistic. According to Forrester, “IT investment in 2007 will be $369 billion, 5 percent above 2006 IT investment of $351 billion. Investment in computer equipment will rebound from the 2006 decline of 2 percent, growing by 5 percent for the year.” Only slightly better IDC says, “Our U.S. IT spending forecast has been raised slightly for 2007, as a result of the overall market performance in the first quarter. We now expect the overall U.S. market to increase by 6.9 percent this year, versus the previous forecast of 6.3 percent growth.”

In a separate report Forrester states that these numbers are important to follow because, “The information technology (IT) industry is a large and growing one, with total global revenues in excess of $1.5 trillion; it generates more than three million jobs in the U.S. alone.” So, though growth may not be that large in percentage points, the dollar amounts and the impact on the economy could be seen as much larger.

A more complete version of this post, including links to market research, can be found at the website of Analyst Views Weekly.

More information on this topic can be found at Northern Light’s Software, Computers & Services Market Intelligence Center.

And in the following articles:

U.S. Technology Hardware Outlook Stable on Good Spending
Hemscott, August 1, 2007
Moody’s Investors Service said the outlook for the US-based technology hardware firms is stable, as the overall technology spending continues to be good and macroeconomic conditions remain generally favourable.

Treasury’s IT spending needs more oversight, GAO says
Computer World, July 25, 2007
One out of every four dollars spent by the U.S. Department of the Treasury goes to IT. But the agency isn’t managing its technology spending as well as it could, according to a report released Monday by the Government Accountability Office.

Network Spending Leads
PC World, July 8, 2007
IT spending in the first three months of 2007 was up in some sectors, according to a report by Framingham, Mass.-based IDC. Service providers and corporate users spent a significant amount of their IT capital budgets on network equipment in the first three months of the year, according to IDC’s U.S. IT Spending 2007-2011 Forecast.

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