IT Spending To Grow Even As Analysts Trim Forecasts

Forrester's and IDC's lowered expectations for the IT industry conflict with technology CFO predictions made just last month.
Two analyst firms lowered their predictions Monday for the IT industry's strength this year.

Forrester Research and IDC issued reports stating that recent changes in the economy have lowered expectations for the IT industry in the United States. The reports conflict with technology CFO predictions just last month.

Forrester said that U.S. IT spending would grow by less than 3% in the United States, as the country leads the way in an IT spending slowdown. In December, Forrester predicted 4.6% growth in the United States.

IT spending in Western and Central Europe is expected to slow to 3%, while purchases in North, Central, and South America (except the United States) will expand to 6%, based on local currencies, Forrester said. Still, that's down from Forrester's December projections of 9% growth.

"A U.S. economy in or near recession will be the main cause of slower 2008 growth, pulling down growth in IT purchases both in the U.S. and with major trading partners in Europe and the Americas," Forrester said in the executive summary of the report.

IDC predicts global market growth of 5% this year, down from its 6% figures reported last year. In the United States, growth will slow to 4% this year, compared with 6% last year, IDC said.

"While there is still debate over the severity and length of a U.S. economic slowdown, we do know that the IT market will not escape unscathed from any significant downturn," Stephen Minton, VP of worldwide IT markets at IDC, said in a prepared statement. "IT vendor performance will likely be buoyed to some extent by growth in emerging geographies, and perhaps by a weakening U.S. dollar, but we have also detected some signs of softer market conditions in Europe and Japan. Any recession in the U.S., meanwhile, would have repercussions across most major economies and IT markets."

IDC said the predictions, released in its Worldwide Black Book, reflect the negative change to economic indicators and projections since the previous quarter.

"The general reduction in anticipated growth for the U.S. economy has translated into forecast reductions across most IT market sectors," IDC explained while announcing the projections. "Additionally, historical correlations and recent IT buyer surveys confirm the view that market conditions are likely to weaken in the coming months."

IDC expects a 5% reduction in the U.S. PC market this year, after growth of 2% last year. The business intelligence company forecasts that IT spending in Western Europe will grow by 4% this year, down from 5% last year. IDC believes Japan will experience 2% growth, while China remains in the double digits (12%), though down from last year as well (17%).

"India is one of the few markets expected to post an acceleration from 2007 growth," IDC said. "Economic indicators are the biggest source of variability within the forecast. Any further weakening of the U.S. economy in the coming weeks, including recessionary conditions, could force IT market growth even lower."

If the United States recovers quickly, expectations could rise again, here and abroad, IDC said.

IDC economist Anna Toncheva cautioned that current indicators are negative. She said in a news announcement that experts are still waiting to judge the impact from subprime mortgages resetting at higher interest rates over the next six months. And it's not likely the government's economic stimulus package will have "a dramatic influence on IT investments this year," she said. "The economy is a big source of unpredictability at the moment, but most current indicators are pointing downwards."

Forrester said global purchases of IT goods and services would equal $1.7 trillion in 2008, while total global spending on technology goods, services, and staff will reach $2.4 trillion in 2008, an 8% increase from 2007.

IDC put global IT spending predictions lower at $1.38 trillion this year, up from about $1.3 trillion last year.

A January survey by accounting and consulting firm BDO Seidman reflected more optimism than the Forrester and IDC reports.

Seventy-three percent of tech CFOs in that survey said they expect their company revenue to increase in 2008 over 2007. The CFOs who expected growth said they forecast 10% growth, on average, this year.

Thirty-nine percent of the respondents said they expect consumer demand for innovative personal technology to be the biggest driver of industry growth in 2008. Thirty-two percent said international expansion would trigger growth, and 17% foresaw higher IT budgets.

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