European users slow down on IT spending

While watching the slow-down in the U.S. economy, IT users in Europe are being increasingly cautious about their spending on hardware, software and IT services, according to industry analysts. This has lead to a revision of industry analysts’ forecasts for IT spending this year in Europe.

International Data Corp. (IDC) estimates the total growth rate of European IT spending to be 11.1 per cent this year, compared to 12.5 per cent last year. Worldwide, it expects IT spending grow 8.6 percent this year, according to recently revised figures. This is even more pessimistic than a prediction made back in February, when IDC forecast that worldwide IT spending growth would be 9.1 per cent this year.

U.S. IT vendors have found themselves forced to revise forecasts due to the slow-down in spending in Europe. Hewlett-Packard Co. (HP) is the latest to warn analysts it is becoming “more cautious” about its revenue outlook for its current fiscal quarter. As a result of a global slow-down on IT spending, HP is taking “additional steps” to generate revenue and reduce costs, CEO Carly Fiorina said in a statement issued in connection with the company’s semiannual meeting with financial analysts Wednesday.

In addition, Sun Microsystems Inc. said in May it will miss fourth-quarter earnings and growth expectations because of weakening demand for its products in Europe.

One analyst agrees that there is a general feeling of cautiousness when it comes to spending in Europe. Some users are hanging on to old equipment just a little bit longer.

“There’s a lot of recycled hardware out there,” said Robert De Souza, industry analyst at Gartner Inc.

The slow-down in spending growth is across the board, and includes hardware, software, services and telecommunication equipment, De Souza said.

However, De Souza pointed out that there is no recession in Europe, and there is still a healthy growth rate in spending, only a bit slower than last year. This is because European companies have watched the dot-com bubble burst, and hardware and telecommunication companies in the United States lay off staff, he said.

“Users are just being cautious because they don’t know what’s around the corner,” he said.

While spending on services is growing at 12 per cent to 13 per cent, hardware spending growth is slower at less than 10 percent over the next five years, he said. This can be compared with the average overall IT spending in Europe which De Souza predicts to be 11.1 per cent over the next five years.

The most attractive service right now seems to be outsourcing; an obvious way for companies to cut costs is to outsource their IT services, De Souza said.

Fung-Yee Tang, an IDC analyst in London, agrees.

“An area of strong growth over the next five years is likely to come from outsourcing,” Tang said. “As corporations seek greater efficiencies in the workplace, many will outsource their IT functions.”

In addition to services, European companies seem to spend mostly on software these days. According to IDC, software is likely to be the main driver of IT spending with a predicted growth rate of 15 per cent this year, compared with estimated overall IT spending growth of 11.1 per cent.

“Users are looking towards software to make their organizations more efficient,” Tang said. “The growth of CRM (customer resource management) and ERP (enterprise resource planning) applications has been evidence of this trend, as companies attempt to tie in back-office operations, such as accounting, ordering and human resources … to the forefront of the organization,” she said.

One company cutting down on IT services is Posten, the Swedish post office.

Posten, with some 19,000 post offices across the country, is cutting down on IT consultancy costs in particular, said Gunnar Fr