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Fiscal Cliff Still A Threat To IT Spending

Tax deal should bolster economy, but automatic spending cuts that could go into effect in March loom over tech industry.
Gartner and Forrester on Thursday released their annual predictions for IT spending in the year ahead. Both firms noted that this week's partial resolution of the so-called fiscal cliff crisis would help the industry toward modest growth in 2013. But another analyst said on Friday that the threat's not over.

Cindy Shaw, of Discern, told clients in a research note that the end of the payroll tax holiday, which means most Americans, even those making less than the $400,000 specified in the Congressional budget deal, will see a tax increase, combined with the possibility of looming federal spending cuts, could still put a drag on tech spending in the year ahead.

Shaw cited the fact that Congress failed to extend the payroll tax holiday, as well as the fact that automatic spending cuts might still kick in on March 1st unless Congress strikes another deal. The cuts, also known as sequestration, could affect thousands of government programs, many of them involving IT.

"Due to another two months of uncertainty about federal spending cuts and higher taxes for most Americans effective January 1st, we expect economic growth to slow early in 2013," Shaw wrote. "This should add to recent pressure on IT spending and negatively impact guidance on upcoming earnings calls. We do not view any IT company as immune."

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Among the tech heavyweights expected to announce earnings later this month are Microsoft (Jan. 24) and IBM (Jan. 22). Shaw said she believes IBM is "best positioned to weather a weak economy" due to its strong presence in emerging markets like China, where she believes enterprise spending is recovering, as well as its focus on high-margin products like enterprise software.

Shaw added that she thinks Dell, which reports earnings on Feb. 19, is among the tech vendors "most exposed" to a downturn. "Positive services developments cannot overcome negative hardware trends at Dell in the near term," Shaw wrote.

On Thursday, both Gartner and Forrester published their 2013 IT spending forecasts.

Gartner predicts spending to increase 4.2% compared to 2012, to $3.7 trillion, or 3.9% when the effects of changes in exchange rates are excluded. Forrester is calling for a 5.4% uptick in worldwide IT spending in 2013, to $1.8 trillion, or a 3.3% gain excluding exchange rate shifts. Unlike Gartner, Forrester does not include spending on telecom products and services in its forecasts.

The product category poised for the most growth, according to Gartner, is devices, which includes PCs, tablets, and smartphones. Worldwide spending on such products will increase 6.6%, to $666 billion, the firm predicts. Gartner previously predicted that the category would grow 7.9% this year, but the increasing popularity of low-cost tablets -- at the expense of pricier PCs -- led it to lower its forecast.

Forrester predicted that Apple will outpace other device makers, estimating that the company's enterprise Mac sales will total $7 billion this year while enterprise iPad sales will hit $11 billion.

The Dow Jones Industrial Average was up 23.95 points in afternoon trading Friday, while the Nasdaq was up .47 points.

Tech spending is looking up, but IT must focus more on customers and less on internal systems. Also in the new, all-digital Outlook 2013 issue of InformationWeek: Five painless rules for encryption. (Free registration required.)