Oct 24, 2008

STKI predicts drop in IT spending in Israel for 2009


IT spending is expected to grow 2.3 percent next year, a figure that's down from earlier projections of 5.8 percent growth. The lowered forecast comes as the markets have been whacked particularly hard over the past two weeks and the credit market has tightened” Peter Sondergaard, global head of research at Gartner, said in a statement. And while Gartner expects IT spending will be greatly affected in the fourth quarter they do not believe the full year 2008 outlook will substantially change for IT spending.

Forrester Research said  that it is cutting its technology spending forecast for 2009, but raising estimates for 2008. They now project 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.

 CIO Executive Board, a group made up of over 1,000 CIOs, polled its members to find out how the crisis was affecting their IT departments. The results are bleak.  Not only are they under pressure to shrink their budgets for 2009, but they’re trying to cut costs before the end of 2008. 61% of CIOs are currently re-evaluating their 2009 budgets. Fifty-nine percent are trying to save money by renegotiating contracts with their vendors, and the same percentage are putting all nonessential projects on hold. Almost a quarter of the CIOs surveyed say that they’ve introduced a hiring freeze, which is a particularly bad sign because it means that businesses may not have enough staffers on hand to finish already started projects on time.

 

STKI, however, has a different assessment on IT spending in Israel, a more dire outcome. While it is difficult to access the year at this point in time, our interviews with leading CIOs are showing that their budgets will be much lower next year.

We forecast a 5 percent to 15 percent drop in IT spending in 2009.

 

We forecasted in 2007, that in 2008 IT growth would be around 2% but now we change this modest uptick to a virtual blip.

 

And here's why:

Two key trends driving spend lower include:

 1) Revenue pressures, write-offs and cash conservation that are causing all “private” institutions to look at technology spending for savings.

2) IT people are thinking about buying less yet still being able to do more. While the year end is typically the busiest period to close deals with vendors, expectations are that there are not likely to be purchases of any meaningful size in Q4 this year suggesting that the typical Q4 budget flush is unlikely to occur.

 

This is the first year (2008) that our forecasts in dollars and our forecast in Israeli Shekels will not coincide.Our forecast should be taken as NIS. In 2008 the dollar “varied” from3.8 to  3.2 to the usual 3.8-4.0. This caused  a purchasing “frenzy” of dollar based products (when dollar was at it lowest) during the first half of 2008. (SEE BELOW in the blog or click here).

 

Given the purchasing behavior during 1H2008 we expect to see storage demand drop some next year, but not to the same degree as servers and desktops, which will be viewed as purchases that can easily be delayed.

Within the software sector (more analysis in the future), security software is expected to actually post gains next year. STKI expects security software spending to rise  10 percent over the current year.

The reasoning relates to the economy and layoffs that are expected to ensue across the corporate landscape. Companies tend to ramp up on security software during times of layoffs, in a move to prevent soon-to-be ex-employees from walking off with corporate secrets and customer lists. Businesses also tend to ramp up on security software during economic downturns to prevent hackers from taking down their operations.

 

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