IDC Predicts Less IT Spending in '08

The hardware market, especially PCs, will be hit the hardest as the U.S. economy slows down.

Global IT spending will decrease in the next 12 months as companies begin to feel the pinch of a slowing U.S. economy, according to new research from IDC.

In a Feb. 11 report, the research firm found global IT spending will increase about 5 percent in 2008 and total about $1.38 trillion for the year. Last year, worldwide IT spending increased about 6 percent and totaled about $1.3 trillion.

Within the U.S. market, spending for IT is expected to grow only 4 percent in 2008 after increasing 6 percent in 2007. IDC analysts found that a downward turn in the U.S. market, especially if the economy falls into a recession, will have a wide-reaching impact worldwide.

The IDC report seems to confirm other research that finds the IT market, which had been immune to the slowdown in the U.S. economy in the last few months of 2007, will begin feeling some impact at least during the first six months of 2008. On Feb. 11, Forrester Research found that global IT spending will grow at a sluggish 6 percent in the next year as U.S. consumers spend less, enterprises tighten their own spending on hardware and the effects of the mortgage crisis and the credit crunch linger.

IDC analyst Stephen Minton said the sub-prime mortgage crisis and tightening of the credit market also means that financial services companies will also cut back on their own IT spending in 2008, which could mean trouble for vendors and IT services companies. The same is true for large retail stores, like Wal-Mart. If consumers spend less this year, these large chains will have less funding for their own internal IT projects.

The IDC report found that the hardware market will be affected more than others. The U.S. PC market, after growing about 2 percent last year, will decline about 5 percent in the next 12 months. Analysts also found that software, services, storage, network equipment and servers will grow, but at a much slower pace.

"Companies look for short-term solutions and they tend to slow down or delay upgrades of equipment," Minton said.

In the next two weeks, Hewlett-Packard and Dell, two of the largest suppliers of IT hardware, will report quarterly earnings, which could give a better indication of how much the IT market has slowed down in the last three months.

Other quarterly reports have not been promising. For example, Cisco Systems reported Feb. 7 that its growth for its third fiscal quarter would be 10 percent, but that number was less than what Wall Street had been expecting.

"Cisco as a vendor is selling into one of the fastest growing portions of the market, which is networking equipment," said Minton. "Spending on networking equipment doubled last year and was expected to double again this year."

IDC and Forrester each had to readjust their forecasts after calculating in recent concerns about the U.S. economy, such as companies planning to spend to less on IT in the coming months and banks tightening their lending to businesses.

A weak U.S. dollar and the hunger in emerging markets for IT could help vendors rebound in the second half of the year, but the IDC report showed that several of these markets, especially China, appear to be spending less on IT as the ripple effect from the U.S. economy slowdown continues.

IDC found growth in China will drop to 12 percent this year compared to 17 percent in 2007. However, India is expected to increase its IT spending thanks in part to its outsourcing businesses and many companies might in turn outsource more IT projects in order to save money this year.

Russia, Minton said, might also increase its IT spending this year. The economy there has been strengthened by rising oil prices.