With the Financial Crisis Looming, Gartner, Forrester Trim IT Spending Forecasts

In a week that saw more problems generated by the financial crisis on Wall Street and the overall credit crunch in the United States, Gartner and Forrester Research issued separate reports that trimmed their forecasts for IT spending in 2009. While the ongoing financial crisis might not impact budgets in the fourth quarter of 2008, Forrester and Gartner both believe that IT spending will slow down starting in 2009, with purchases of PCs, servers and storage equipment slowing down first.

ORLANDO, Fla. - With the ongoing financial crisis and the credit crunch in the United States continuing, Gartner and Forrester Research have issued separate reports that point to less IT spending in 2009, with purchases of PCs and servers already slowing down this year.

At its 2008 Symposium/ITxpo, Gartner analysts released a report that trimmed the research firm's IT spending forecasts for 2009. Instead of the 5.8 percent growth that Gartner originally expected, the downturn in the economy now means that IT spending will only grow 2.3 percent next year. Since most IT budgets for 2008 have already been set, Gartner did not see a significant impact in spending for the fourth quarter.

While the cuts in IT spending will not be as dramatic as when the Internet bubble burst in 2001, the reductions in spending do mean that the financial crisis is having an impact both in the United States as well as in Europe and even emerging market countries such as Russia and Brazil.

"Developed economies, especially in the United States and Western Europe, will be the worst affected, but emerging regions will not be immune," Peter Sondergaard, the global head of research at Gartner, wrote in the Oct. 13 report. "Europe will experience negative growth in 2009, the United States and Japan will be flat."

The big difference between now and 2001 is that IT is much more integrated into the day-to-day operations of most companies, which makes it much harder to blindly slash IT budgets when economy grinds to a halt, according to Gartner.

With all the strains on the global financial market, Forrester Research analysts believe that IT spending will be flat until 2010. In an Oct. 15 report, Forrester trimmed its U.S. IT spending forecast from 6 percent growth in 2009, to 2 or 3 percent growth. In the global IT market, Forrester downgraded its 2009 IT growth forecast from 8 percent to about 4 percent.

In the Forrester report, Andrew Bartels, an analyst, wrote that many companies were already cutting back on purchases of hardware, such as desktops, notebooks, servers and storage equipment. Earlier this week, IDC and Gartner released their third-quarter reports on the worldwide PC market and while both firms found that desktops and notebook shipments grew by 15 percent, there were signs that consumers and commercial spending were slowing down.

The quarterly PC reports found that Hewlett-Packard and Dell were still the two largest suppliers of PCs, but both companies were seeing an impact from the economic slowdown.

"Computer equipment vendors already have been mostly posting declines in revenue on a year-over-year basis throughout 2008 as CIOs have been delaying and deferring buying PCs, servers and storage devices," Bartels wrote. "Communications equipment vendors have seen similar software on the enterprise market side, although carrier investment has been offsetting that."

While hardware purchases were already slowing down, Bartels believes that software purchases and IT servers will begin to slow down during the next three financial quarters. Bartels cited SAP announcing that the company had begun to see a drop off in new software sales during the last two weeks of September.

"We think that this was a precursor to poor sales by all vendors in the fourth quarter of 2008 and the first half of 2009," Bartels wrote.