Gartner: Wall Street woes won't take down tech

Firm urges two IT budgets: one based on execs' guidelines, another for growth should the economy improve

IT spending is faring better than the overall economy, and the sector "will avoid a recession in 2008," according to Gartner Inc. But in a report sent to clients this week, the analyst firm said it believes IT budgets will show "very low year-over-year growth rates until business growth significantly improves."

Gartner and Forrester Research Inc. do not see tech spending traveling into negative territory, but the word "slow" and "slowdown" is used often enough in their reports to get the message across about what's ahead. Forrester released its forecast last week.

Gartner is nonetheless advising clients to hedge a little and not assume that the economy won't improve next year. It's recommending that IT managers prepare two budgets: one "based on guidelines and directions of senior executives," and another "growth budget for 2009 in the event that healthier economic growth rates begin to return next year."

Gartner said that overall U.S. economic growth and IT growth are moving at two different speeds and that the tech industry may be "even more resilient than we had originally imagined."

In the Gartner report, analysts Ken McGee and Mark McDonald cite government data, results of a survey of about 1,000 CIOs, and recent quarterly reports from top vendors to reaffirm an assessment made earlier this year that IT spending won't turn negative. Tech stocks have taken a beating on Wall Street but have recovered some this week.

Gartner noted in the report that after the last recession, U.S. IT budgets grew slowly. But it said that "executives should not blindly follow history and automatically cut IT costs in 2009 until they are certain that IT's current counter economic-trend performance isn't being contributed to, in part, by their competitors."

In a Sept. 24 report, Forrester said technology purchases were stronger in the first half of 2008 than its projections, but that it was cautious nonetheless. "The U.S. recession and the resulting tech market slowdown have only been delayed, not cancelled," the report said.

Forrester projects a slowdown in tech purchases in the remainder of this year and that the trend will carry into the first half of 2009. But it has now raised its forecast in 2008 growth in the purchases of IT goods and services by business and government to 5.4%, compared with its May forecast of 3.4%. But it has lowered its projected growth rate of 10% for next year to 6.1%. Forrester noted that software and outsourcing are two strong areas.

The Forrester report's author, analyst Andrew Bartels, said with regard to financial firms, he expects 10% cuts at most in IT where firms have been acquired or merged. In the case of the bankrupt firms whose assets where purchased, the IT reductions could be as much as 20% to 30%, he said.

Copyright © 2008 IDG Communications, Inc.

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