Corporate IT budgets evaporating, report says

Citi projects 10% to 20% decline in 2009; could be worst-ever year for CIOs

U.S. corporate IT spending will plummet 10% to 20% in 2009, according to the latest projections from Citi Investment Research, which is reporting a "rapid deterioration" of CIO budgets in recent weeks.

Citi's outlook is the most negative of any major research outfit to date. Forrester as of last week was still projecting 1.6% growth. 

Citi's dire prediction is an about-face from the results of a survey of 200 CIOs in September, which indicated that corporate IT spending on hardware, software and services would grow 1% next year.

The collapse of the financial markets is causing CIO budgets to dry up. 

"Financial services IT budgets look to be down 10% to 20%," says Citi spokeswoman MaryEllen Hillery, who said nonfinancial services firms have less visibility into their IT budgets but are projecting declines.

"It's the events of the last couple months -- the credit crisis, the heightened focus on cash outlays of all kinds, consumer spending trends, employment trends, the realization that this is a really bad downturn we are looking at," Hillary adds.

If Citi's prediction is true, next year will be the worst year ever for corporate IT budgets.

"To put this in perspective, we have had overall IT spending at flattish only once before -- in 2002 -- while all other years the IT budget has grown."

The Citi research report, titled "IT Services Update -- Recent Checks Negative," was released Thursday.

One of the challenges for forecasters like Citi is that IT executives are later than usual at finalizing their IT budgets for the first quarter of 2009. This is causing IT buyers to defer spending until the second half of 2009 to protect against future budget cuts.

"Clearly budget discussions have gone poorly for CIOs following the market disclocation in September and October," the report states.

Banks are further along at cutting their IT budgets for next year and are pressuring IT services firms for discounts as high as 15% from 2008 fees. Citi says that while the financial services sector is being most aggressive in demanding price cuts from IT vendors, the retail, media and technology sectors are likely to follow suit.

To cut their budgets, CIOs are expected to shrink IT projects, postpone new developments and outsource more of their operations to lower-cost locations. 

"Most companies will use a combination of factors to get to their lower budget," the report said.

The Citi report provided 2009 projections for three IT services firms: Accenture, Cognizant and Infosys. Citi said Infosys and Cognizant were its top picks for offshoring, but that all three vendors should be able to weather price pressure from customers with higher volumes as more companies do IT work offshore.

"The offshore value proposition is alive and well, as IT buyers indicate that moving work offshore is a proven way to lower systems costs in a tough environment," the report says. "However, slow decision making hurts; post budget acceleration should help."

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