is it logical ? ? not to me

Today I visited a client whose IT budget is no more than 1.6% of its revenues. His boss asked him to cut 20% of the capital investment and 10% of the operational budget (a total of 10% compared to budget 2008). 

In order to do this the company will stop projects that could have increased revenues, some that could reduce costs and some cuts would increase the risk of IT failures. 

Now my thoughts: 

by cutting .16% of revenues (as expenses) the company lost much more.

Does it make sense to cut IT without a real analysis??????? 

I cannot understand the logic...........  any comments ??????