How low can we go?

In a recent letter to shareholders, IBM Corp. CEO Samuel Palmisano outlined how Big Blue is positioning itself to be a leader after the current recession is over. That may be marketing spin, said Vito Mabrucco, but there’s wisdom in it.

“The real winners will be those who start to anticipate the recovery,” IDC Canada Ltd.’s managing director said Thursday during a Webcast updating the research firm’s December forecast for IT markets in 2009 and beyond.

“This is not business as usual for this process,” Mabrucco said. The data and modelling used to forecast comes under much more intense scrutiny in bad times than in good, he said.

IDC Canada’s projections for the $40-billion Canadian IT market were modelled on three possible scenarios, based on forecasts from Consensus Economics Inc., which interviews economy watchers and provides pessimistic, optimistic and mean forecasts for economic growth.

Mabrucco noted that as the economy has worsened, all three of those numbers have declined in proportion to the others. “We’re seeing a self-fulfilling prophecy … momentum is driving this negative environment further,” he said.

The first scenario, which he called guardedly optimistic, assumes the positive impact of stimulus packages, industry bailouts and low interest rates will take effect soon and hustle the economy toward recovery in 2010. That forecasts an IT spending decline of 3.1 per cent in 2009, with a return to historic growth rates of 3.5 per cent by 2011.

The second, more likely, scenario, according to Mabrucco, assumes much of that economic stimulus will go into savings, consumer spending will continue to decline, corporate profits will be slashed by 30 per cent and business investments will slide 10 per cent. That renders a seven per cent loss in spending in 2009. Growth doesn’t return to 2008 levels until 2012. The worst-case scenario would see spending decline 11 per cent in 2009 and five per cent in 2010, before posting a modest 2.2 per cent growth in 2011.

But University of Toronto economics professor Jack Carr doesn’t buy the “self-fulfilling prophecy” theory. Pessimism doesn’t create a worsening economy; a worsening economy creates pessimism.

“I don’t think the psychology really affects things,” Carr said in an interview with Computerworld Canada.

Part of the forecasting problem, Mabrucco said, is with economists taking ever-worsening previous month data and forecasting six months out on that basis. Carr agreed.

“When people see current data going bad, they adjust their models” to be consistent, Carr said. “You can fudge it any way you want.

“It’s only limited by their imaginations.”

Most recessions last about 18 months, Carr said, though this one may be worse than usual, something akin to the double-dip recession of the early 1980s. We’ll pull out of it when we pull out of it, he said. Banks are tightening credit, businesses aren’t investing, and consumer spending is slowing. “This happens until they see signs of a recovery,” Carr said. “They highly discount forecasters.”

Among the specifics in the IDC forecast:

* PC shipments will slow as some demand shifts to netbooks, an economical alternative. Over the next two years, notebook computer demand will outstrip demand for desktops, with 75 per cent of those sales to small and medium business, increasingly through retailers. That will erode prices quickly. Vendors will have to find alternate paths to market, and take advantage of the 100-per-cent first-year write-down provisions for IT hardware and system software in the recent federal budget.

* Servers and storage will be especially hard-hit, facing double-digit declines. After 24 months, enterprises are going to feel the pain of not having enough storage; that could boost storage-as-a-service and cloud storage offerings.

* As predicted in the December forecast, virtualization sales will remain strong — posting double-digit growth — as will management, optimization and business intelligence software, as companies try to wring more efficiencies out of their systems.

* Wireless handset device replacement cycles will lengthen, and companies will look to more converged devices. The entry of phone based on Google Inc.’s Android platform will increase competition; IDC predicts at least two new handset manufacturers will appear in the Canadian market. At the same time, though, carriers will be looking to support fewer devices, not more.

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