The Red Flags On IT Spending - InformationWeek
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10/7/2008
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Chris Murphy
Chris Murphy
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The Red Flags On IT Spending

In our current article on IT strategies in this weakening economy, CIOs made it clear they aren't hitting the panic button. But two recent data points -- SAP's revenue warning, and a dip in U.S. IT employment -- suggest more IT leaders are punching the "pause" button at the least.

In our current article on IT strategies in this weakening economy, CIOs made it clear they aren't hitting the panic button. But two recent data points -- SAP's revenue warning, and a dip in U.S. IT employment -- suggest more IT leaders are punching the "pause" button at the least.SAP CEO Henning Kagermann described a "very sudden and unexpected drop" in sales in September, leading to revenue growth this quarter of 4% to 5%, well short of expectations. Two months ago, based on a solid second quarter, Kagermann reaffirmed the company's full-year growth target of 25% to 27%. Apparently, it was just in the last two weeks of September that the extent of SAP's sales drop became clear. "Throughout the third quarter we felt quite positive about our ability to meet our expectations," Kagermann said.

The other recent, troubling data point is a 2% dip in U.S. IT employment, in the third quarter report from the Bureau of Labor Statistics' household surveys. U.S. IT employment still is up 6% from a year ago, but until this quarter, IT jobs had shaken off the malaise in financial services and signs of slowdown.

The first-half IT job growth, plus decent second quarter earnings reports -- not just from SAP, but also Cisco, Hewlett-Packard, IBM, Intel, Oracle and others -- raised hopes that IT wouldn't be whacked by a slowdown. There's a logic in that, articulated in our recent IT strategy story: as businesses look to cut costs, it often means more demand for IT, as companies use IT to improve efficiency and get by with fewer people. The worry now is that cash is so tight amid wary credit markets that even ROI can't pry it free.

Other dark clouds people are writing about: Silicon Valley Insider reports that Citibank analyst Richard Gardner cut growth estimates for Hewlett-Packard and Dell, cutting his estimate for 2009 global PC shipments to 5% from 10% to 12%. Larry Dignan at ZDnet notes a UBS downgrade of Salesforce.com. Salesforce made its name in the last downturn, offering a less capital-intensive way to do CRM.

In our IT strategy article, Shaklee CIO Ken Harris urged IT leaders to have cost-cutting contingency plans at the ready, because, "If and when things tighten, it will happen quickly." SAP's surprising warning shows just how quickly that can happen.

Has your outlook changed? Are there other indicators -- positive or negative -- we should be discussing? We want to know what projects are charging ahead and how IT teams are taking on this downturn. Let us know.

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