Companies rein in IT spending in 2007


IT spending is expected to rise 4 percent to 6 percent in 2007, down from 8 percent last year, as companies seek to rein in the expense of running their computer systems, according to a consensus of industry forecasts.

However, spending growth rates are expected to be higher for small to medium-sized businesses (SMBs) and in emerging economies globally than in more mature markets, according to the consensus report from AnalystPerspectives, a unit of IT and business books publisher SkillSoft PLC.

The report also notes some seeming contradictions. It forecasts growth in the use of virtualization in data centers to reduce the number of servers needed, but still predicts strong growth in sales of server hardware. Virtualization makes it possible for a server to run multiple software applications and operating systems on the same physical server. The report forecasts healthy 6.5 percent growth in server sales, but also says more companies will be running those new servers as virtual servers.

This year, businesses will be able to invest more in strategic IT initiatives than they did last year, according to a forecast from Gartner Inc., one of several analyst firms included in the report.

Increased energy costs, regulatory compliance demands and other overhead meant that much of the IT budget in 2006 went just to keep operations going, wrote Jed Rubin, director of Gartner Consulting.

“This increased ‘run the business’ spending has consumed budget resources that were originally earmarked for more strategic and transformational investment. IT leaders are now planning to optimize their spending in these areas in the year to come,” noted Rubin. The forecasts also anticipate stronger IT spending by SMBs — businesses with less than US$1 billion in annual revenue — than large enterprises with more than $1 billion in revenue.

AMI-Partners forecasts global SMB IT spending to grow by 10 percent in 2007. By contrast, Gartner forecasts large enterprise IT spending to grow by only 2.8 percent this year, down from 6 percent growth in the first half of 2006. The consensus is that SMBs are realizing the importance of IT to the success of their businesses.

IT spending growth will be strongest in some of the emerging economies. IDC, for instance, forecasts “scorching” IT spending growth of an average 14 percent in places such as China, Eastern Europe, the Middle East, Africa and Latin America. But India will top them all with a forecast 23 percent increase. By contrast, IT spending in the U.S. may grow 6.3 percent.

And even though Microsoft Corp.’s Windows operating system is a significant presence in the business market as well as the consumer market, the market reaction has been “lukewarm” to its new Vista OS and Microsoft Office 2007 set of business applications.

AnalystPerspectives cites a CIO Magazine survey that showed only 15.8 percent of CIOs planned to upgrade to Vista or Office 2007 and only 8.3 percent planned to upgrade to both. The survey showed that 20.7 percent needed more information before deciding on an upgrade, but that 63.6 percent had no plans to upgrade.

CIO is owned by International Data Group Inc., the parent company of IDG News Service.


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