Forrester: 2008 to Be a Slow Year for IT Spending
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Forrester Research predicts the year ahead will be a slow one for IT spending, both in the U.S. and globally.
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India's major software firms say a US economic slowdown may bring more customers seeking cost savings, but analysts warn that the once red-hot sector faces tough times in 2008.
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The technology industry's outlook for 2008 looks worse than it did just two months ago, when fears of a U.S. recession already were leading analysts to predict a slowdown in purchases of computers, software and tech services.
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(InfoWorld) - A Sun Microsystems executive said the $13 billion technology company should be able to handle a possible slowdown in information technology (IT) spending better than some of its larger rivals. John Fowler, senior vice president of Sun's Systems Group, which sells servers and related products, responded Tuesday to a research report forecasting slower growth for global IT spending in 2007. Forrester ResearchÂ forecasts worldwide spending on IT goods and services to grow by only 5 percent next year, after two consecutive years of 8 percent growth. Forrester said 5 percent would be the weakest growth rate since 2003. Fowler, in an interview with technology reporters, said larger rivals such as Hewlett-Packard, which finished its fiscal year with $91.7 billion in revenue, IBM, forecast to make $90.72 billion, and Dell, $58 billion, are more vulnerable to macroeconomic conditions than the smaller Sun. "We can, in a weaker market, gain ground in market share by virtue of product and execution, which is what has been happening," Fowler said. He noted that when the worldwide server market grew by just 0.6 percent in the second quarter of this year, Sun's revenue grew by 15.5 percent, according to a report from the research firm IDC. In the third quarter, when the server market grew only 3.5 percent, Sun's revenue grew 15.8 percent. "You have to pay attention to macroeconomics but...if you were a $60 to $70 billion company, the macroeconomics affect you [more] dramatically," Fowler said. However, Sun's server shares have been in the low double digits and the company has been reporting net losses in recent quarterly reports. Forrester said sales in the U.S., in particular, will be weak as chief information officers at companies reduce spending in the coming year. "This is a caution flag for IT vendors, 2007 will be a challenging environment," said Andrew Bartels, vice president of Forrester Research, in a prepared statement.
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SMBs in North America expect to increase their IT spending by an average of only 2 percent this year after boosting spending 8 percent in 2006, according to a Forrester Research survey.
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A slowing economy weighs on the employment software company.
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Sudden year-end slowdown is to blame, researcher says.
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A pair of Forrester Research analysts gave CIOs a passel of advice Thursday on how to deal with the possibility of a U.S. economic recession.&quot;We are not predicting a recession, but we think its important for CIOs to be proactive, to get their businesses ready in case there is a recession,&quot; said analyst Andrew Bartels, who conducted the teleconference with colleague Alex Cullen.Their recommendations boiled down to a number of main themes: The right ways to cut costs, to work closely with CFOs, and to plan not only for the lean times but for the good ones that inevitably follow.&quot;Get close to your CFO. You want to be arm in arm with that CFO,&quot; Bartels stressed.Forrester said there is a 55 percent probability the economy will remain essentially stabilized, due to factors including U.S. exports boosted by a weak dollar. The firm projects a 35 percent chance the country will enter a shallow recession, and a 10 percent chance it will fall into a deep one.The analysts said to watch for two key warning signs: Gas prices rising above $4 a gallon and two or more consecutive months of non-farm payroll employment.If they haven&#39;t already, CIOs should prepare now by reviewing their portfolios and identify which projects could be postponed, cut, or cancelled, he said.&quot;If you&#39;re running things well, adapting to recession is easier,&quot; Cullen noted.The tradeoffs vary depending on the type of cut, he said. For example, delaying hardware purchases could result in increased service outages.CIOs could also try other tactics, such as renegotiating vendor pacts or enacting hiring freezes, according to Forrester. Such measures could antagonize business partners and overburden staff, they said.But those types of risks are mild in comparison to that posed by cutting certain types of &quot;low-hanging fruit,&quot; such as time and support for research and development.&quot;These things look like they don&#39;t have immediate payback, so the question is &#39;Why are we doing them when times are tight?&#39;&quot; Cullen said.Likewise, it would be foolish to pull money and resources away from architectural strategy, he argued: &quot;You&#39;re going to be impeding your ability to take a long-term view of IT investments. When the tap opens up again people are going to be creating silos ... and you&#39;re going to spend your time unwinding these things.&quot;&quot;The worst thing you can do as a CIO is get so focused on cuts that when you come out of a recession, your department can&#39;t take the business where it wants to be,&quot; Bartels added.Outsourcing IT may also look like an appealing option, but the analysts issued a stern warning against it as a quick fix.Large-scale outsourcing deals take a long time to close, for one thing, Cullen argued: &quot;This is not near-term savings. This is not 2008 savings.&quot; But outsourcing of a particular IT function could make sense, he said.The hot trend of the past couple of years -- SaaS (software as a service) -- is not necessarily a fitting remedy during a recession, the analysts argued. While SaaS vendors relentlessly tout the cost savings their offerings can provide, it would cost a lot more to rip and replace legacy assets with SaaS products, the analysts said. However, they added, SaaS might offer lower upfront costs for a new technology.
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(InfoWorld) - SMBs in North America expect to increase their IT spending by an average of only 2 percent this year after boosting spending 8 percent in 2006, according to a Forrester Research survey. The survey of about 1,200 businesses with six to 999 employees released Tuesday showed that 62 percent of them have an optimistic outlook for their companies this year, up from 46 percent in a 2006 survey, but that doesn't translate into significantly more IT spending, said analyst Michael Speyer. "Last year's spending increased fairly robustly. The ... market is telling us now, 'Guess what? We're going to keep it steady now,'" Speyer said. IT spending will focus on new hardware purchases and added personnel. Hardware spending is expected to focus on replacing or upgrading servers and the regularly scheduled replacement of about 25 to 30 percent of companies' desktops and workstations. Software purchases will be mostly of network security and Web application products. Twenty percent of IT managers surveyed said improving the efficiency of their IT systems is a top priority, and 33 percent of them are focused on measuring the impact of their IT spending on business performance. Although virtualization is a big trend in IT, SMBs are less focused on it than are large enterprises, Speyer said. Virtualization, which, among other things, makes it easier to run multiple software applications simultaneously on one physical server, enables a company to consolidate the number of servers it operates. But SMBs are less likely to use virtualization for server consolidation because the potential savings are not as great as in enterprises. "If you look at a typical midmarket company, anything from 12 to 17 servers, there's not a whole lot of hardware there. Where server consolidation plays out is in the enterprise space where you have hundreds of servers," he said. Although SMBs may do some server consolidation, they may still buy some new servers for disaster recovery and security purposes and to run new software applications, the survey said. And although new technology is supposed to increase automation, SMBs will devote 29 percent of their IT budgets to full-time IT staff, the highest of any spending category, including hardware, software, and networking equipment. As IT systems grow, they get more difficult to manage, but SMBs don't have the in-house staff to manage systems as an enterprise does, Speyer said. So while they may have to hire more full-time employees or part-time contractors, they may also turn to system integrators or value-added resellers to take over some management functions. IT spending also varied by industry sector. Spending is expected to rise most steeply in the telecommunications sector (7 percent), business services (5 percent), and finance and insurance (3.4 percent). It is expected to decline in the manufacturing sector (-0.6 percent) and the media, entertainment, and leisure sector (-0.9 percent).
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Despite financial market volatility, U.S. technology companies had a strong 2007. The rising cost of energy, fears of recession, and forecasts of a slowdown in IT spending, however, point to a rocky 2008.Despite losses at the beginning of the week, the Nasdaq Composite Index, heavily weighted with technology stocks, closed Monday with a 9.8 percent gain for the year -- its biggest increase since 2003. The jump came despite fears that falling housing prices would drag down the economy and that tech companies would not be immune to cautious business and consumer spending.The housing panic caused a slump in the Nasdaq in the third quarter. But IT investors looked to the bottom line: Tech earnings stayed strong throughout the year, buoying trader confidence. In a range of technology sectors, IT bellwethers such as IBM, Google, Apple, and Oracle announced record quarters.But tumult in markets this week could be a harbinger of things to come. Tech shares on the Nasdaq slipped before and after the Jan. 1 holiday. Traders are nervous because the dust has not settled from the housing crisis, which affects consumer spending as well as the financial sector. Rising energy costs also affect both consumers and businesses, and this week the price of oil hit the $100-per-barrel mark, sparking inflation concerns.A U.S. Labor Department report on Friday said that nonfarm industry jobs rose 18,000 last month, the smallest increase in more than four years, while the unemployment rate rose to 5 percent. The Nasdaq responded, dipping by about 2.6 percent by early afternoon. Even industry stalwarts slumped, with Google trading at $668, down 16 percent from its opening, and IBM shares going for $101.76, down by 2.9 percent.Most IT analysts are predicting slower growth for technology. U.S. IT investment, for example, will increase by 4.8 percent in 2008, compared to 5.3 percent in 2007, according to Forrester Research.Coming off a strong earnings year in which hardware sales fared better than expected and consumers continued to flock to the Internet, there are bright spots, however. For example, comScore reported this week that during the Nov. 1 to Dec. 27 holiday season,&#160;U.S. consumers spent about $28 billion online, a 19 percent increase compared with the year-earlier period.Citigroup Global Markets this week said that Amazon, with good margins and attractive digital media offerings, is in a good position. It upgraded its advice on the company from &quot;hold&quot; to &quot;buy&quot; Wednesday, and shares jumped by $3.61 to close at $96.25.Similarly, on the same day, Yahoo shares rose $0.46 to close at $23.72 after ThinkEquity upgraded it to &quot;buy&quot; from &quot;accumulate.&quot;Nevertheless, fears of a downturn are casting shadows over even generally strong sectors such as Internet retail.&quot;The recession risk is one reason why we believe the outlook for U.S. Internet stocks is not as strong going into &#39;08 as it was going into &#39;07,&quot; said Citigroup in a research note.Semiconductor stocks, including Intel and AMD, also declined midweek, after Bank of America issued a report saying that large inventories combined with probable slower growth paints an unfavorable picture for the sector.With the macroeconomic scene in flux, tech investors will anxiously await the first earnings reports of the year, due later this month.
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CAMBRIDGE, Mass.-- New research from Forrester Research, Inc. (Nasdaq: FORR) predicts that spending on IT goods, services, and staff will grow 7 percent in 2005 and continue at a similar pace through 2008
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Businesses are planning to scale back their IT spending in the third quarter of 2007, according to a survey released Friday by an investment research firm.
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It's beginning to look like 2001 in the general economy, with consumers tightening their purse strings and businesses shedding jobs. But in the technology business, which suffered more than any other in the last meltdown, there are fewer signs of strain this time around.
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IT spending is forecast to grow in the high single-digits next year and remain on that pace through 2008, according to two reports released Monday by Forrester Research.
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LOS ANGELES (CBS.MW) -- US technology spending is projected to rise 7 percent next year and continue at about the same rate through 2008, according to results of a survey released Monday that also showed improved optimism on outlays in the sector.
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US spending on information technology goods, services, and staff will grow seven percent in 2005 and continue at a similar pace through 2008, according to a study released Monday by Forrester Research.
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The U.S. economy will grow at a  moderate clip in 2007 as consumer spending growth slows and  business spending moderates during the second half, a key  economic forecast released on Tuesday showed.