If Washington doesn't blow it, stronger tech growth possible

Tech spending is getting cautious thanks to 'uncertainty'

WASHINGTON - The looming launch of a new iPhone may give the appearance of old times in tech. There's nothing like an upgrade frenzy with long lines at Apple stores.

But nothing could be further from the truth. JPMorgan, Forrester and IDC this week all lowered their tech spending forecasts for the year. Gartner did so in June.

The analysts, while they aren't all in agreement on the extent of the problem, broadly blame Europe and a slowdown in China for this pullback along with a stronger U.S. dollar. But the overall catchword is "uncertainty." And into this pot of uncertainty, the U.S. government is ever more prominent and ominous.

JPMorgan warns that uncertainty related to U.S. government spending pre-and-post upcoming elections could weigh on the IT sector. Forrester is much blunter and sees an unfolding impact.

The U.S. is experiencing an improving housing market, growth in the U.S. auto industry, low interest rates and lower energy prices. These forces could set the stage for stronger economic growth in the second half of this year, "if politicians don't blow it," argues Forrester Research analyst Andrew Bartels in his report.

But concerns about the "fiscal cliff" in Washington "seem to be causing both businesses and consumers to be cautious in their buying" in the last two quarters of this year, said Bartels.

This fiscal cliff refers the potential expiration of the Bush tax cuts in January, and automatic budget cuts via sequestration that could sharply reduce government spending.

To help stir the pot, House Speaker John Boehner said he is "not confident at all" that a deal can be reached with President Barack Obama, reports NBC News.

Moody's reminded Washington about what could happen if the U.S. descends into fiscal turmoil was, saying in a statement Tuesday said if negotiations don't lead to policies "that produce stabilization" it may lower the government's rating.

None of the analysts agree on the exact rates of growth, but they all agree on the trend to varying degrees.

Forrester puts global tech growth rate in U.S. dollars this year in January at 5.4%. It's now forecasted at 1.3%.

IDC also lowered its numbers in its report, setting at 6% growth worldwide versus a 7% increase last year in constant currency. But it is, overall, the most bullish on the outlook, thanks to strong demand in the first half of the year for tablets, smartphones, storage capacity and networking.

JPMorgan expects spending growth for this year to 1.9% increase in global spending versus the 2.2% increase it had previously forecasted.

One strong spot, reported IDC, was software spending. "In particular, the strength of software spending seems to prove that many enterprises have unlocked significant productivity and efficiency improvements," wrote Stephen Minton, an analyst with the research firm.

Although software growth has been strong, JPMorgan estimates that as much as 40% of the growth is at risk if European, U.S. government and financial services spending slows as a result of economic turmoil.

"While software applications and tools can help optimize IT environments, customers can put the brakes on projects in the initial stages of economic challenges," wrote JPMorgan. "Reason being, software-led projects can result in operational disruption or cost overage. Both risks are not what most CIOs want to have to explain to their CFOs in tough times, in our view."

Read more about it industry in Computerworld's IT Industry Topic Center.

Copyright © 2012 IDG Communications, Inc.

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