Gartner Lowers IT Spending Outlook for 2010

Gartner analysts are joining the parade of other firms and tech vendors who say that a slowing economic recovery could impact the IT industry in the second half of 2010.

Worldwide IT spending will continue to grow through the end of the year, but not at the pace initially expected, according to analysts at market research firm Gartner.

Overall, IT spending will hit more than $2.4 trillion in 2010, up from the $2.3 trillion in 2009, when the global recession was in full swing, Gartner said in a report Aug. 10.

However, the growth appears to be slowing. Earlier this year, Gartner analysts had predicted a 4.1 percent growth for the year.

Gartner's revised numbers fall in line with what economists say is a slowing economic recovery in the United States and abroad, and dovetail with what other analysts firms and IT vendors are seeing.

A week before Gartner released its report, IDC analysts said the global IT market beat expectations in the first half of the year, convincing them to offer their spending projections of $1.51 trillion for all of 2010, a 6 percent jump over last year.

IDC analyst Stephen Minton said the first half growth numbers were the result of both the fact that 2009 was such a difficult year and that businesses and consumers are looking for new technologies.

Still, Minton said, IT vendors needed to be cautious.

"Amidst the general sense of optimism that has accompanied results from the first half of this year, there are also reasons to be wary of excessive exuberance," Minton said in a statement. "Our surveys indicate that businesses are still cautious about committing to new, long-term IT projects, and are still anxious about the possibility of a double-dip recession. Decision-making cycles remain long, and many enterprises have contingency plans in place for the next 12 months which could see more projects suspended."

Gartner analyst Kenneth Brant had a similar view. While tech vendors should make their plans for 2011 with the idea of about 3.5 percent growth, they also should make alternate provisions.

"They should act now to develop contingencies to mitigate the risk of zero growth in 2011, a scenario that carries a lower probability but a much-higher potential impact," Brant said in a statement. "The bottom line is that technology providers need to be prepared for the worst case, where commercial IT markets stagnate and governments transition to fiscal austerity programs."

IT vendors also are feeling the effects of a slowing economy. During Cisco Systems' fiscal fourth-quarter earnings call Aug. 11, CEO John Chambers talked about a climate of "unusual uncertainty" in the economy that is weighing on the mind of customers. The result during the quarter was a rollercoaster ride for Cisco, where the first five or six weeks of strong sales gave way to another five weeks of declines from mid-June to mid-July. However, the last two weeks of July were particularly strong, he said.

"The economy continues to be the wild card in many of our customers' minds," Chambers said during a conference call with analysts and journalists.

Chip makers Intel and Advanced Micro Devices also saw their stock prices take a hit after reports from several analyst firms warned of possible slowdowns in corporate and consumer IT spending in the second half of 2010.