IDC Cuts Global IT Growth Expectations in Half

The ongoing global economic crisis will likely cut expected IT spending growth in half in 2009, according to a newly revised report released Wednesday by IDC.

Previous forecasts predicted growth of 5.9 percent; that number has decreased to 2.6 percent in the more recent report. In the U.S., IDC anticipates IT spending to decline to 0.9 percent in 2009, a significant drop from the 4.2 percent growth predicted in August.

“Although all the economic forecasts went from up slightly to down drastically in a matter of days, the good news is that IT is in a better position than ever to resist the downward pull of a slowing economy,” said John Gantz, chief research officer at IDC.

“Technology is already deeply embedded in many mission-critical operations and remains critical to achieving further efficiency and productivity gains. As a result, IDC expects IT spending will continue to grow in 2009, albeit at a slower pace.”

Rough All Over

The bad news is that not only is spending growth trending downward, but it will be down across all IT sectors, Stephen Minton, an IDC analyst, told the E-Commerce Times.

“Our overall story is that there is going to be an impact that will be felt by everyone at all ends of the industry — hardware and software. Everybody’s going to feel it in some way. It will vary in who feels it the worst, because we think that hardware will be hit more severely than software and services, especially in the near term,” he explained.

IDC points to history to explain why it expects hardware makers will take the initial brunt of the slowdown.

“Companies try to save money quickly by slowing down their capital spending. All the surveys we’ve done over the last month support that and tell us that is where they are going to make their cuts first and the deepest,” Minton continued.

The spending decline, however, will not be as significant for emerging markets in Central and Eastern Europe, the Middle East, Africa and Latin America. While markets in Japan, Western Europe and the U.S. depend on upgrades for growth, in emerging economies, many new purchases are first purchases.

Recession Reaction

IDC forecasts that the spending slowdown will result in a loss of more than US$300 billion in revenues over the next four years.

As businesses cut back on spending, hardware and software makers will respond with their own cost-cutting measures. Smaller hardware makers may be forced to close their doors or downsize their product lines, while larger companies will cut back on research and development, Minton pointed out.

“Whenever you have a recession, it leads to a certain amount of consolidation. Acquisitions become cheaper, and as the bottom of the downturn starts to pass, we’ll see some acceleration in those kinds of acquisitions,” he said.

Consolidation will probably be most pronounced in the software sector. Hardware consolidation happened after the 2001 downturn, but software is still an incredibly fractured sector of IT, with thousands of small companies who will be battling just to survive over the next 12 months, Minton stated.

“The other thing is that some companies will have to try to scale back investing in the areas that have the least levels of profitability and growth for them as kind of a way of controlling their own expenses during the recession,” he added.

For the industry overall, consolidation is the path to maturity and will result in less volatility. It will also be good for end users because it could result in more open platforms that will not tie them to proprietary technology.

“It brings down the cost of IT for buyers. It’s not good, obviously, for individual companies and their employees in the short term, but for the IT industry as a whole, it is sort of an inevitable process that happened in a more severe form after 2001. This time around will not be anything as cataclysmic as it was in 2001 to 2004. It’s a much smaller bubble that is being popped now,” Minton noted.

Assuming that the crisis does not deepen significantly or extend beyond the two- to three-year time frame many economists have predicted, IDC expects IT spending to fully recover with growth approaching 6 percent in 2012.