IT Spending to Rise in 2010, Forrester Says

Forrester expects IT spending in the United States to ramp up in the second half of 2010. Overall, Forrester predicts that spending will be 9.9 percent more than in 2009, an increase from the 8.4 percent it predicted in April.

Forrester Research analysts are increasingly optimistic about the growth of IT spending in the United States and around the world in the second half of 2010, despite the economic problems in Europe that have caused other analyst companies to reduce their expectations for the rest of the year.

In a July 21 report, Forrester analyst Andrew Bartels said he expects IT spending for the year to reach $753 billion, a 9.9 percent increase over 2009. That is also a bump up from the 8.4 percent increase Forrester was predicting in April.

Globally, Bartels said Europe will be impacted by the economic problems stemming from Greece and other southern European countries, with IT spending growing about 2 percent, down from the earlier forecast of 5.2 percent.

The global IT market will grow by 7.8 percent to more than $2.4 trillion, according to Forrester.

The problems in Europe have convinced other market research companies to downgrade their predictions. Gartner July 1 predicted that worldwide IT spending will increase 3.9 percent, a drop from the 5.3 percent the company had predicted in the first quarter.

Computer equipment makers-including those that make PCs, servers and storage devices-will be the big winners, as enterprises begin to refresh their hardware, Bartels said in the Forrester report.

Tech executives have been expecting strong growth in corporate IT spending after the budget freezes during the global recession in 2009. In the computer equipment segment, they expect that the aging hardware fleets, new products from the likes of Intel and Advanced Micro Devices, and Microsoft's new Windows 7 OS will be key drivers in the growth of corporate spending.

During a call July 13 with analysts and journalists while announcing record quarterly earnings, Intel CEO Paul Otellini said his company saw strong corporate spending in the second quarter.

Forrester expects that to continue, predicting that computer equipment spending in the United States will grow 19.1 percent, followed by 10.5 percent growth for software, communications equipment spending growth of 7.2 percent and consulting services growth of 6.4 percent.

Bartels said two key factors are driving his predictions for solid U.S. IT spending growth. The first is that the economy has been growing since the third quarter of 2009, and projections are for continued growth. The second is the rising adoption of what Forrester calls Smart Computing platform technologies, including SOA (service-oriented architecture), virtualization and analytics.

"Adoption of what we call Smart Computing technologies drove a surge of investment in late 2007 and the first half of 2008, when the recession interrupted," Bartels wrote in his report. "However, with the end of the downturn, that tech innovation cycle has resurfaced in 2010, helping to drive tech investment growth."

Even with the optimistic outlook, Bartels said there are risks.

"The most likely alternative to our forecast remains slower growth than we assume in the U.S., as continued slow growth in employment saps consumer spending and the strong dollar and weak European economy hurts U.S. exports," he wrote. "That scenario, which we put at a 25 percent probability, would cause growth in both the U.S. and global tech markets to slow to the 5 percent to 7 percent range."

An even more remote possibility-which he puts at 5 percent-is that the European financial situation could worsen to the point where bank defaults in Greece or elsewhere could trigger a financial crisis, similar to what happened after Lehman Brothers unexpectedly failed in September 2008.