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As the U.S. stock market continues to fluctuate and Wall Street’s biggest firms wait to see if a bailout package will arrive on their doorsteps, there’s the question of what will happen to IT budgets as credit becomes scarce and worries mount about the overall health of the economy.
While analysts believe it is too soon to tell whether IT budgets will be impacted by what has been happening on Wall Street since Lehman Brothers declared bankruptcy on Sept. 15, it seems clear that there will at least be some slowdown in spending, especially when it comes to purchases of PCs, server systems and storage arrays. How big of an impact this will all have is still unknown.
In a report, IDC said it believes that the financial sector accounts for about 20 percent of all IT spending in the United States, and that the latest calculations suggest that these firms may cut about $3 billion in IT spending in 2009. This is likely to have an impact on purchases of servers and PCs since it is generally easier for IT departments to delay hardware purchases than software purchases.
Still, just because a firm such as Lehman Brothers goes into bankruptcy does not mean it stops spending on IT. Stephen Minton, an analyst with IDC, said large portions of Lehman Brothers still function and will continue to do so even after they are sold to other financial companies. In that case, Minton said, spending will continue, although IT spending and IT projects may be consolidated or curtailed.
“When a company gets acquired or part of a company gets acquired by another, obviously there will be certain elements of tech spending that will be consolidated,” Minton said. “Whether that means consolidating data centers or removing how many licenses they need for software, it will have a dampening effect on tech spending overall. As far as putting numbers around it, it’s too early.”
What is important to remember as the Wall Street crisis continues is that spending on IT has been slow since the beginning of 2008. The slowdown in spending on Wall Street started as early as the latter part of 2007, when the first signs of the subprime mortgage fallout began to appear. This chain of events was factored into how IT budgets and projects for 2008 were developed and approved, which means IT spending outside of Wall Street is likely to continue and it could take some time before the impact of the financial troubles of Lehman Brothers, AIG and other companies is felt.
The Good News About Spending
Right now, IDC is calling for IT spending to grow about 4 percent in 2008 compared with the 8 percent growth the United States saw in 2007. Minton said it could take another few months to determine whether IT spending will slow more or even out. A good deal depends on whether the White House and Congress agree to a bailout and what impact those funds would have on Wall Street.
Andrew Bartels, an analyst with Forrester Research, said he believes a lot of spending decisions are different for each individual industry. While banking and financial services have slowed down, other sectors such as media companies and health care will continue to spend, although IT managers could become cautious, he said.
“If you’re at Lehman Brothers, you might have to cut 20 percent,” Bartels said. “If you’re at Merrill Lynch or if you’re at Wachovia and there is going to be consolidation, then there are certain things that are going to have to be put on hold because you don’t want to make decisions right now.
“If you’re outside of those extremes, the much more common approach is going to be cautious, [to] proceed with what we have and try to avoid major new commitments. However, you don’t want to run [too far] either way.”
In the case of PCs, for example, Bartels said he believes spending on new notebooks and desktops may pick up by the middle of 2009, since the cost of servicing old PCs could begin to outweigh the cost of upgrades to new hardware. In addition, many companies have already delayed purchases of new PCs and time may be running out
One factor that might help is that prices for PCs continue to fall, as vendors look to cut prices on both the consumer and enterprise sides in order to keep shipments up for the year.
However, Minton cautioned that IT managers can still hold off on buying servers and PCs if the companies they work for tighten the budget belt in 2009.
“The first thing companies do is start making their hardware last longer, and they are able to do that because their hardware isn’t really breaking down,” Minton said. “When you talk about PCs, and to an extent data centers, there are drivers to upgrade this stuff. To an extent, we have already seen this in sectors that have slowed down in 2008. A big indication of what an IT company does with its spending can be seen in its hardware upgrades.”