Purchases of IT hardware such as desktops, notebooks, servers and networking gear are among the budget items to be slashed in tough times. As problems with the U.S. credit market and Wall Street's crisis of confidence continue, IT managers might have to start making cuts in their budgets by the end of 2008. History tells us that means cutting hardware expenses such as desktops, notebooks, servers and networking gear. While cutting hardware and infrastructure costs remains a common approach, a lot hinges on a company's overall financial health and its priorities.
When economic times got tough in the past, IT departments usually turned to
PCs and other hardware-servers, network equipment and storage arrays-to make
the budget cuts that management demanded to pare operating expenses.
With the current
U.S. credit crisis and the uncertain condition of Wall Street banking and
financial firms promising to dominate the economy
through the rest of the
year, IT departments might have to step up again to provide the budget cuts
needed in these tough times. While hardware is an easy area to target, that
might not always be the solution to reducing an enterprise's expenditures.
"What I'm hearing from my colleagues is that this is not like the post-9/11
time, which saw some pretty severe belt-tightening," said Bob Keefe,
president of SIM (Society for Information
which represents some 3,000 senior IT managers. "There's
a lot of uncertainty more than anything else, but I haven't heard too many of
my colleagues bemoaning the current situation."
Keefe, who is also senior vice president and CIO
of Mueller Water Products, in Atlanta,
said in the past when his colleagues were asked to cut IT expenses during
tough economic times, it usually meant putting off purchases instead of upgrading
PCs, or perhaps buying fewer servers. Now, with IT more closely tied into the
overall day-to-day operations of the company, it's no longer a simple matter of
holding off on buying new desktops or notebooks.
"When you decide to cut out something like new PCs next year, you can
say, 'Yes, we can do that,' but there's a downside," Keefe said. "On
the one side, if we don't put new PCs in, it's going to save us 'X,' but there
is an offsetting cost that will probably incur more break-and-fix
activities, and that is 'Y.' So maybe it comes down to that we are not
saving 10 percent or whatever number we were trying to get to. It's all a
While the financial crisis on Wall Street started with the failures at
Freddie Mac (the Federal Home Loan Mortgage Corp.), Fannie Mae and Lehman
Brothers in September, the economy has been slowing down since the first signs
of trouble from the subprime mortgage mess started in 2007. Consequently, spending
on IT infrastructure, software and hardware
has been down since the start
of 2008. While IT spending increased about 8 percent in 2007, it's only
expected to grow about 4 percent this year, according to IDC.
financial sector accounts for about 20 percent
of all IT spending in the United
States. While spending on servers and PCs is
likely to slow down within financial services and the banking sector, other
industries such as health care and media still seem to be buying a fair amount
of hardware and IT infrastructure.
Still, no company or IT department is immune to an overall slowdown in the
economy, which means that some cuts might happen sooner than later even if
budgets have already been set for the year.