Forrester Research Sees IT Spending Declining in 2009

A slowing global economy along with a strengthening U.S. dollar means that IT spending will decline about 3 percent in 2009, as companies cut back on their purchases of desktops, notebooks, servers systems and other hardware, according to a Jan. 13 report from Forrester Research.

While a weak U.S. dollar helped to boost IT spending about 8 percent in 2008, the global economy combined with a resurgent U.S. dollar means that IT spending will decline about 3 percent this year for a worldwide total of $1.66 trillion, according to Forrester. (The report calculates worldwide IT spending in U.S. dollars.)

The IT market does look to bounce back in 2010, when IT spending increases about 9 percent in terms of U.S. dollars. In the meantime, companies are planning to cut back on hardware purchases, such as desktops, laptops and server systems, and larger business might delay implementing large projects like ERP (enterprise resource planning) software.

On the other hand, Andrew Bartels, an analyst with Forrester, believes that companies will continue to spend on storage as well as essential software for security. Bartels also believes that companies will continue to spend money on software licenses despite the tough global outlook.

“Storage has been one of those categories that has been up and down, but sooner or later you’re going to have to buy more storage boxes,” said Bartels.

“Storage is growing constantly, so we think it is going to come back,” Bartels added. “The one area that is going to be the strongest is software. One reason for that is that there are chunks of revenues such as maintenance and subscriptions that just keeps growing. There is also some software that companies see as essential, such as security, or software that is seen as a way to save money in the long term.”

In 2009, businesses will spend about $388 billion on software. However, enterprises will spend $353 billion or 3 percent less on networking, routers, switches and other equipment in 2009. IT Spending on PCs and servers will decline 4 percent to $434 billion while spending on IT services will decline 3 percent.

Even with bleak outlook for 2009, Bartels said IT spending will not fall as much as it did in 2001 and 2002, after the tech bubble burst. In both of those years, IT spending fell 6 percent.

The news from Forrester comes as Intel, a major bellwether when it comes to IT spending, prepares to release its full fourth quarter financial numbers Jan. 15. Earlier this month, Intel announced a revenue forecast of $8.2 billion, which is down from the $9 billion that the chip maker predicted in November. In October, Intel originally predicted fourth-quarter revenues of between $10.1 and $10.9 billion.

In addition to the gloomy outlooks from Intel, Nvidia announced Jan. 13 that its fourth-quarter revenues would be between 40 and 50 percent lower compared to the previous quarter.

Both Nvidia and Intel are each citing less demand for desktops and notebooks and Bartels said both businesses and consumers are buying fewer laptops. The demand for consumer laptops, combined with a weak U.S. dollar, helped boost sales in 2008 as the overseas growth helped PC vendors such as Hewlett-Packard along with Intel and Nvidia.

While the strong U.S. dollar will hurt the revenues for Intel, HP, Dell and other vendors based in the United States, the weaker Euro should help European-based vendors such as SAP, Ericsson and Nokia. This situation is likely to change again if the Euro strengthens against the U.S. dollar in the next several months.