Gartner Says Recession IT Drop Worse Than Post Dot-Com Bubble Bust
Wednesday, April 1, 2009
With the global economy tanking, IT spending this year will drop to a level much worse than what was seen following the dot-com bust in 2001, a market research firm said Tuesday. Companies worldwide will spend 3.8% less on IT than in 2008, or $3.2 trillion compared with nearly $3.4 trillion, Gartner said. When the Internet investment bubble burst eight years ago, IT spending fell by 2.1%. Gartner has been lowering its IT spending estimates for months. Last October, the research firm said its “worst-case scenario” called for a 2.3% increase in IT spending for 2009. By February, Gartner had lowered its prediction to an increase of 0.5%. The latest numbers reflect another dramatic across-the-board lowering of Gartner’s forecast for the four IT segments: computing hardware, software, IT services, and telecommunications. A major contributor to the decline is the drop in the global gross domestic product, or GDP, which is expected to fall by 1.2% this year after expanding by 2.3% last year. With the exception of software, which will be nearly flat, all the other segments will see declines, led by computing hardware, which will fall 14.9% to $324.3 billion, Gartner said.
The drop in computer spending is caused by a slowdown in new sales in emerging markets and replacement sales in mature markets among businesses and consumers. In addition, virtualization, which enables companies to consolidate more business applications on a single server, also is expected to contribute to the sales drop. As a result, virtualization software sales are expected to be a bright spot in the gloomy forecast. At $4 billion in annual sales, the virtualization market is a sliver of overall IT spending. Nevertheless, companies are expected to spend 33% more on the technology than last year. Sales through 2013 are expected to increase at a compound annual growth rate of about 30%, Gartner said…..Vendors are contributing to the growth in virtualization with better technology. Intel, for example, launched on Monday 17 server processors based on its next-generation Nehalem EP microarchitecture, which has been fine-tuned for virtualization and widely adopted by server manufacturers. In general, the software market will see a 0.3% increase in global spending to $222.6 billion. Besides virtualization, companies are expected to invest more in open source software, which is often offered at no charge with companies charging for maintenance and support services. In addition, the software-as-a-service market will grow more than 20% this year, Biscotti said. However, SaaS represents only 7% or 8% of spending on business applications, so the growth isn’t enough to have a major impact on overall spending.
Spending on telecommunications technology, which accounts for almost half of IT spending, will fall 2.9% to $1.9 trillion, Gartner said. Contributing to the decline is the drop in consumer spending on new mobile phones and wireless data services…..Finally, companies will spend 1.7% less this year on IT services, or $796.1 billion. Consulting services will be among the hardest hit, as companies freeze spending on new projects. While the financial industry has been decimated by the collapse of the U.S. housing market, spending on services by banks, insurance companies, and investment firms remain a “significant wildcard,” Gartner analyst Kathey Hale said. “That sector is not going to disappear overnight,” Hale said. Financial institutions could be forced to spend more on technology and services to help meet new government regulations.