There's Hope for the IT Industry
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Although companies will reduce their IT spending because of the economic meltdown, it's not going to be all doom and gloom for the IT industry.
System integrators and consultants will get a boost from the crisis in the financial sector, say analysts, as institutions that have taken over or bought others seek to align their back end systems.
Vendors offering solutions for governance, cost and profitability analysis, and data integration are also expected to benefit as companies figure out what to cut and how to do it safely and to their greatest benefit, or merge and consolidate systems after an acquisition or merger.
Meanwhile, analysts predict that pay as you go services, ranging from software-as-a-service (SaaS) to hosted service providers to cloud computing providers to hardware leasing, may see an uptick because using them will cost corporations less up front than buying hardware or software outright.
"Most financial institutions will cut back on IT spending," Rodney Nelsestuen, research director of the cross industry group at the financial services industry research provider Tower Group told InternetNews.com. "At least half of them will freeze spending or reduce it to the extent that they can for the next six to 12 months."
New projects will be the most heavily impacted. "About 22 percent of IT spend from financial institutions will be impacted, but most of this will be discretionary spending, like new innovative projects they were looking into," Ellen Joyner, global banking marketing manager at the SAS Institute, told InternetNews.com.
The overall IT spending picture is not pretty, with securities industry IT spending in North America expected to fall by almost 15 percent, and 29 percent of leading companies overall expected to cut or stop IT spending in the fourth quarter of the year.
Still, things won't grind to a halt. "The business must go on, and companies will need to spend on and support what they need in order to conduct their business," Nelsestuen said.
Data integration at the back end will also become important because of the mergers and acquisitions in the financial industry. "The first thing that happens in an M&A is they have to bring together things like general ledgers and then customer service capabilities so they have a single view of the customer," Chris Boorman, chief marketing officer of Informatica, told InternetNews.com. "That means bringing together data from disparate systems."
Hanging on to the cash
Also, consulting firms and systems integrators "will have great potential for work" because most financial institutions that bought others "may not have the bandwidth to execute on a full system integration," Nelsestuen explained.
Another growth area that will emerge is in business analysis applications. "Activity costing and profitability management solutions will help corporations optimize where they should put their spend and where the major costs are," SAS Institute's Joyner said, predicting that this will be "one of the hotter areas in the short term."
That cost-cutting must be accompanied by strong governance to avoid breach of compliance. "As IT gets cut back, institutions will have to make hard decisions about what to do and what to cut, and they'll need to manage their risk and analyze their operational process better," Nelsestuen said. "Governance will become very important."
Companies that have to get new equipment or software will look to SaaS and pay-as-you-go strategies, Nelsestuen said, adding that they may lease hardware rather than buy it although "the economic impact over the long run is equal whether you buy or lease." Big vendors such as HP (NYSE: HPQ), IBM (NYSE: IBM) and Sun Microsystems (NASDAQ: JAVA) will benefit from the move to leasing, he added.
Although Salesforce.com (NYSE: CRM), one of the best-known SaaS players and the only one to make the S&P 500, might be set to profit handily as enterprises begin to focus on SaaS, company executives declined comment when contacted.
Another new technology that will attract interest is cloud computing, but it may not benefit too much because "for institutions that are regulated and are looking to start a cloud computing initiative, there's a lot of risk involved and it's not something to undertake lightly," Nelsetsuen said.