$300 billion lost as IT spending slows down

IT spending will drop next year as a direct result of global financial problems, growing less than half as much as earlier predicted by IDC, the analyst firm said Wednesday.

Over the next four years, IDC said that more than US$300 billion in IT industry revenues globally will be lost due to slower spending. Earlier this year IDC was more optimistic

In a newly revised forecast, IDC said worldwide IT spending should grow by 2.6% in 2009, down from its previous forecast of 5.9% growth.

Growth in IT spending in the U.S. will slow to a trickle to 0.9% in 2009, down dramatically from a 4.2% increase that IDC forecast in August, prior to the financial crisis that hit in September. IDC is owned by International Data Group, which is also the parent company of Computerworld.

Other analyst firms, such as Forrester Research Inc. and Gartner Inc., in early October had also suggested that IT spending will drop due to the economic climate but that IT would be more resilient than some other economic sectors.

Their forecasts for 2009 then were higher than IDC’s revision Wednesday, which reflects the impact of more declines in early November. Gartner Inc. says IT spending will exceed $3 trillion in 2009

Even before the economic downturn became apparent in September, some analyst firms, such as Goldman Sachs & Co. had forecast IT job cuts in 2009 . Some vendors of IT products such as Mitel Networks Corp. have announced layoffs based on predictions of economic decline.

IDC also forecast a “downside scenario” that is more dire than the slower growth rate, showing that IT spending could be barely positive, at 0.1% for 2009, if the current crisis becomes worse.

That downside scenario is designed to help executives plan for situations should the impact of the crisis grow more pronounced, IDC explained. In this most pessimistic outlook, IDC said global spending on goods and services could slow to 0.3%, worse than any year since World War II.

Despite the negative news, John Gantz, chief research officer at IDC, said in a statement that IT is still in a “better position than ever to resist the downward pull of a slowing economy.” He explained that technology is already used extensively in mission critical roles and remains vital to making productivity gains for businesses. IDC said that spending growth in Japan and Western Europe is also expected to be about 1% in 2009, near that of the U.S. In emerging economies, such as Central and Eastern Europe, the Middle East and Africa, and Latin America, IT will continue to see “healthy growth” but lower than the double digit increases that IDC had previously forecast.

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Software and services will see solid growth overall, while hardware spending will decline in 2009, with the exception of storage, IDC said. No percentages were reported.

Despite $300 billion in lost revenues over the next four years in IT spending, IDC predicted a “full recovery” by 2012, with growth rates in the 5% range.

Stephen Minton, vice president of worldwide IT markets at IDC, said that even though the revised forecast and downside scenario reflect a “grim outlook” for growth for several years, IT spending should actually do better when compared with spending after the downturn that followed Sept. 11, 2001.

At that time, companies were recovering from purchases they made during the dot-com bubble and to prepare for Y2K fixes, neither of which apply today, Minton said in a statement. As a result, he said there will be continuing pressure to make IT investments in order for companies to stay competitive.

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