Desktops, Laptops, Servers and Networks Are First to Go in Tight Budget Years

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 Management), 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 balancing act."

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.

The 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.