Sep 20, 2008

How soon will we feel the effects of IT recession/recovery?

This article was later published in The Marker (in hebrew)     link here

As the economy goes, so goes IT spending in Israel.

The economy is casting a dark “invisible hand” over IT budgets, but there could be light at the end of 2009.

I believe that the second half of 2009 could see a return to brighter days (growth of over 5%).

The current doldrums in Israeli IT spending began during 2Q 2008, following strong years in 2005 - 2007 (see figure).

It looks like the economy is dictating the pace of IT spending because most IT budgets for 2009 (at this stage of the planning process) will at its best be flat…… but it will effectively be a cut.

It’s all about the economy; it is the only reason for CIOs to be pulling back on tech projects.

This is what I hear in my interviews of IT professionals. Based on these interviews, I have to assume that a recession (in the IT-Israel) will start during the 4Q2008 and will carry over into 3Q2009.
CIOs are telling me that their company’s management are looking at the economy, very confusing, during the budgeting process and they’ll be approaching 2009 very cautiously and very conservatively in terms of spending.
If we were in a recession during the first 3 Qs of 2008, it was not reflected in IT budgets. There was no panic setting in, as in the early part of the decade. The mood was of proceeding with caution, while not abandoning new initiatives. The reason is that IT people have made significant progress in tying technology to their organization’s business mission. As a result, IT is not so frequently looked at as pure overhead.
While more new initiatives may be coming under closer scrutiny in budgets for 2009 than in some previous years, maintaining IT at a normal level, including moderate growth, hopefully will be the order of the day at most organizations.

While the economy exerts a strong force on the budget process, there are several technology and other factors that will make an impact:
(Whether the times are good or bad, some new projects are indispensable)

The accumulation of data that must be stored continues without letup. This proliferation of data will drive new investment not only in storage but in other data center technologies, as well. There is a lot of value in this information, so people are spending on data mining and business intelligence tools and other big applications like supply-chain management, product lifecycle management, content management and collaboration tools.
Hardware spending peaked during 1H2008 (mostly because of the low/weak dollar). In 2H2008 we will see weakness in PCs and servers but not in networking and security.Most Israeli companies are rolling out smart phone applications (finally).


1.- Forrester Research is cutting its technology spending forecast for 2009, but raising estimates for 2008. In a nutshell, Forrester now projects 2008 technology spending growth of 5.4 percent, up from 3.4 percent. In 2009, Forrester is projecting growth of 6.1 percent, down from 9.4 percent.
2.- Gartner finds that IT spending will see healthy growth in 4Q2008. The firm reported today that worldwide IT spending will exceed $3.4 trillion in 2008, an 8 percent increase over 2007 levels. Gartner projects that worldwide IT spending will total $3.6 trillion in 2009, an increase of 6% over its projected total of $3.4 trillion in 2008. Total worldwide IT spending is expected grow by 8% this year and rose 10% in 2007 from the year before.
3.-Worldwide IT spending will increase to $1.3 trillion by the end of 2009, with a compound annual growth rate (CAGR) of 5.9% from 2005-2009, according to IDC. Government, manufacturing, banking, healthcare, communications and media industry will be the industries that provide the most attractive opportunities for IT vendors worldwide.
4.- Computer World: IT jobs will drop in 2009. Sharp reductions likely in contract staff, professional services and hardware, and almost no investment in cloud computing
5.- Computer Economics: For the second year in a row, IT spending as percentage of revenue declined from the previous year. Median IT spending this year is 1.5% of revenue, down from 1.8% in 2007. Not all sectors are equally impacted by the economic downturn. Energy/utility companies and high-tech organizations are continuing to increase their IT budgets by 8.0% and 7.0%, respectively. IT spending is slowing the most in the banking and finance, retail, and process manufacturing sectors, with growth rates of 2.5%, 2.0%, and 0%, respectively. In general, growth is also slowing more significantly in smaller companies than in larger organizations.

STKI: Now (beginning of Q4/2008) reports from technology vendors, outsourcers and industry analysts weave a much different tale about technology spending . We are all reporting a "slowdown in the decision-making process," which is industry-speak for "initiatives are on hold until the economy rebounds."
Will the markets experience a turnaround in Q1/2009? Probably not. A lot still can happen, but for now, the best most observers seem to be hoping for is a quiet Q4/2008 and Q1/2009, with no more bad news about the economy. If that happens, maybe I can start writing about 2H/2009 as the rebound half year many were hoping 1H/2009 would have been.

1 comment:

Kim Leonard said...

It definitely seems that this economy will put IT budgets under even greater scrutiny in companies worldwide. Cutter's Vince Kellen posted 9 strategies for IT in a down market on The Cutter Blog. His strategy lines up with your findings, Jimmy, that business intelligence and analytics are a good competitive investment in a down economy.