IT budgets suffer more shrinkage

Cisco network equipment, enterprise iPhone deployments among the few bright spots for IT spending

Goldman Sachs and Forrester Research separately report that enterprise high-tech buyers are tightening their purse strings and backing off from investing a lot of cash in IT.

Industry watchers are once again lowering their forecasts for IT spending as enterprise IT buyers report they are cutting budgets and approaching future investments with caution.

Goldman Sachs this week released the results of its quarterly IT Spending Survey that polls 100 managers with decision-making authority at Fortune 1000 companies. The research firm adjusted its forecast for U.S. IT spending to 4% for 2008. That number is down from 6% in 2007, and Goldman Sachs attributes the shrinkage to IT buyers thinking about long-term investments.

"Tech's high correlation with the broader economy means that a deceleration in tech spending in 2008 appeared inevitable at the beginning of the year and seems even more pronounced as we enter [the second half of 2008]," the report reads. "Our IT spending indices hit their lowest level of the year, indicating that macro concerns continue to weigh on spending expectations. Indices still imply mild growth, but clearly a downward bias."

Separately Forrester Research reported that 43% of 950 senior IT managers polled have already cut their overall IT budgets in 2008 in reaction to the slow economy. Another 24% put discretionary spending on hold. Forrester's study found that 49% of U.S. companies polled are cutting budgets, while 31% of companies polled in Europe are doing the same.

Chart of IT budgets

"This is not an across-the-board spending slowdown; the impact of the economy on IT budgets varies widely by industry and geography," stated John McCarthy, Forrester vice president and principal analyst, in a press release.

But the research firms did find bright spots in spending plans. For instance, Goldman Sachs discovered a rebound in investing in networking equipment. The technology area had dipped to 42% of respondents expecting to increase spending in the firm's June survey, but jumped to 54% during this quarter. And the percentage of respondents expecting a decrease in network equipment spending declined to 13% from 17%. Specifically, spending for Cisco products shows positive signs, the research firm says.

"In our August reading, 53% of respondents expect to increase spending on Cisco products in the next 12 months, up from 44% in June and within the 50% to 70% range that we consider healthy," the report reads. "Likewise the number of respondents who expect to reduce their spending on Cisco declined to 11% from 15%."

The quarterly research also showed that the percentage of survey respondents expecting to support the iPhone 3G within the next year had increased to 23% from 17% in June -- which Goldman Sachs considers "a strong result."

"Although Apple continues to score well in our survey as a PC share gainer, the 23% of the companies represented in our survey that expect to deploy the iPhone 3G is significantly higher than Apple's Mac position in the enterprise, which has remained below 1% over the past few years despite Apple's increased acceptance among SMBs and customers," the report reads.

IT services represent another bright spot for spending. Forrester found that despite budget cutting, many of those 950 IT managers polled intend to continue to invest in IT services. Forty-five percent of firms plan to increase their use of applications outsourcing, while 43% are increasing their use of infrastructure outsourcing. Another 43% indicated they would be moving more work offshore.

"With regard to the services sector, the slowdown has firms renegotiating rates, being more selective in choosing vendors, and examining spending more thoroughly, but they are still expecting to pay more for services," Forrester's McCarthy said.

Learn more about this topic

Forrester: Europe, US IT budgets getting slashed

Wall Street Beat: Spending slows, Dell does too

Grim outlook for US IT spending, study says

Gartner says IT spending growth to slow across the board in 2009

IT spending tight at investment firms

US corporate IT spending outlook still murky

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