An Arizona-based analyst says what looks like a gloomy future for the IT industry is really just a reflection of things getting back to normal.
According to a report released Wednesday by technology research firm Cahners In-Stat, overall 2001 business IT spending is expected to plummet 12 per cent from 2000 estimates because of uncertain economic conditions in the United States, including the events of Sept. 11.
Kneko Burney, director of In-Stat’s eBusiness infrastructure and services research and author of the report, said this marks the first decline in total business IT spending in the last decade. However, because of a boom of business over the last few years that had businesses over-investing in technology, the drop in spending just means that executives are finally being more careful with their money.
“It never really paid off and now it’s vapour,” she said. “After what’s gone on (in the last two months), there is a halt on everything. Some very large companies are in some very poor positions and we are expecting little to no investment in technology in the last quarter.”
The report shows that effects of Sept. 11th are expected to drive spending further downward, particularly among smaller companies, where business failures are believed to be on the rise.
“We don’t expect a quick recovery, but I see it as a correction in that businesses are re-prioritizing,” she said. “The kind of gloom to it is that we expect a lot of businesses to fail in the next few months.”
However, Wayne Gudbranson, president of the Ottawa-based Branham Group, said while Sept. 11 may have highlighted recent financial trends, many businesses are simply using it as excuse to reduce head-counts and spending.
“There were two years that were insane (in spending) and September 11 was an unfortunate thing, but it made everyone in the marketplace sit back and look at their lives a little bit,” he said. “What we have to do is go back and buy cars and IT departments have to buy their supplies, but it has to be smart decision making.”
Gudbranson said businesses in last few years have had “an incredible focus” on transforming themselves so they could leverage the Web, but the rate of the absorption on the part of end-users just wasn’t aligned with vendor expectations.
“That means what you have is a lot of excitement generated by the vendor community that is just not being fulfilled in the end-user community,” he said, adding that the impact was worsened by end users stretching out budgets and asking vendors for new proof of return on investment.
“Twelve per cent doesn’t seem all that out of the ordinary, really,” he said. “It’s not good, but in the last two years we have gone from one continuum of sheer hype and greed feeding the marketplace to the other side where there are a lot of funeral parlour directors out on the street. I think end users are awakening to the fact that they have to take time and make good decisions. Whatever you install, it has to make sense.”
The Cahners report found that the areas of IT spending expected to be least affected are communication services and networking and outside services like applications integration and hosting.
In enterprise businesses with at least 1,000 full-time employees, Cahners predicted per firm IT spending will fall 18 per cent. The middle market will fare the best, falling 13 per cent. Small businesses will suffer a fall of about 17 per cent and small office/home office businesses will feel the biggest brunt of the pain, with an estimated drop of 27 per cent.
Ottawa-based The Branham Group is at http://www.branhamgroup.com
Arizona-based Cahners In-Stat Group is at http://www.instat.com