Forrester lowers estimates on tech spending in '08

Look for slow growth early in the year, but a better Q3

With just a few weeks to go before 2008 arrives, analyst firm Forrester Research Inc. today lowered its expectations for U.S. IT spending in the new year, largely because of a U.S. economic slowdown.

In October, Forrester projected overall spending for IT hardware and software would grow by 8% in the U.S. next year; today it lowered that growth estimate to 5%.

That news may not be all bad, Forrester analyst Andrew Bartels said today in a conference call. In fact, 2008 appears to be shaping up as a replay of 2007, when IT spending started slowly but then recovered as the year wore on.

IT spending for software, computers and communications equipment will hit an estimated $377 billion this year and is projected to rise to $394 billion next year, according to Forrester. The Cambridge, Mass.-based firm said total IT spending, which includes expenditures on hardware, software, IT salaries and outsourcing, will be an estimated $775 billion this year, rising to an estimated $815 billion in 2008.

In his report, Bartels said that while the overall U.S. numbers are being revised downward, economic data still indicates the U.S. will avoid a recession.

Those most likely to be affected by reduced spending early in the year will be computer hardware and communications equipment vendors, as well as IT services vendors, since cutbacks are typically made in those areas when economic times are uncertain, he said. Much the same happened this year, he said, with weak economic growth in the first couple of quarters followed by "a bit of a rebound."

"All the indicators are that we're going to skirt a recession, not be hit by one," Bartels said, adding that he could be wrong if consumer spending patterns change, energy prices rise sharply or something unforeseen affects the U.S. economy. Two or more months of declines in nonfarm payrolls or gasoline prices above $4 per gallon would be precursors to a recession, he said.

Forrester estimated in October that software purchases in 2008 would rise 10%, network equipment purchases would be up 9% and computer equipment spending would be up 4%. The firm has now cut those estimates to 8%, 3% and 2%, respectively.

Changes in spending on IT staffing won't be as dramatic, Bartels said. Companies are expected to increase spending on IT staffing and outsourcing by 6% in 2008 -- that's the same rate of increase as this year. One IT staffing area that's likely to be hard hit are IT services consultants and contractors, where growth in spending is expected to drop to 3%, down from an estimate of 9% back in October, Bartels said.

Globally, Forrester envisions 9% growth in IT purchases next year, down slightly from this year's estimated 12% growth rate.

For CIOs and other IT executives, caution is the watchword. Although Forrester expects growth, companies "almost have to plan for the possibility of recession occurring" in case of a slowdown. Leaders could guard against a downturn by putting off larger purchases until later in the year, he said.

Uncertain economic conditions could lead vendors to be more flexible. "It will also be a good year for bargains," Bartels said. "Vendors once again will be struggling for sales."

Copyright © 2007 IDG Communications, Inc.

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