What Bad Economy? IT Spend Will Grow This Year
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Despite concerns about U.S. economy, a survey by Gartner finds that IT spending will see healthy growth in 2008. The firm reported today that worldwide IT spending will exceed $3.4 trillion in 2008, an 8 percent increase over 2007 levels.
Worldwide, software spending will show the strongest growth in 2008 at more than 10 percent, followed by IT services spending at 9.4 percent growth. The two are expected to grow in tandem, Gartner said, because new software solutions often require labor-based services to implement them.
The news follows earlier indications from Gartner about CIOs' plans, suggesting that IT is maintaining its spending regardless of Wall Street worries.
One reason why IT spending continues to remain strong may be because, essentially, no one wants to shut down a datacenter, said Kathryn Hale, research vice president at Gartner. "In general, IT is not like any other utility. You can't just turn it off. The banks won't run without computers," she told InternetNews.com.
Gartner found spending even in times of economic uncertainty is supported by two factors: businesses are investing in improvements to internal processes aimed at reducing costs, along with their own innovations, and that globalization allows IT services providers to mitigate the risk of weakening demand by operating in more markets.
One of the ways companies are reducing risk and expense is shifting their hardware and software assets from company owned to per-use, service-based models. This leads to better asset utilization -- paying for something only when it's needed -- and reduced maintenance costs.
This economic slowdown is different from the last one, from 2000-2002, in that it was not preceded by a whole lot of free spending. In the late 1990s, IT projects froze spending and new installs to just concentrate on Year 2000 preparedness. Once January 2000 came and the world didn't end, there was a lot of pent-up IT spending -- perhaps too much, Hale noted.
"It was a time of extreme free spending, and following that crash, so there have been several years where IT departments have been subject to extreme discretion of their spending habits and had to justify every purchase they made," she said. "So, I would say they are the one department that can say 'Been there, done that,' when it comes to careful examination of spending."
"People have not been overspending on IT and, thus, it is not the juiciest place to cut right now," she added.
The main area of hardware growth activity is PCs, which represents 60 percent of total hardware spending. That growth is stronger than previously expected, with Gartner seeing no signs of a slowdown.
Hale said this is due to many older systems, which were bought early in the decade and are now finally breaking down and needing to be replaced.
Even though the current economic situation is largely a consumer one, it still erodes business confidence and has become the main concern of IT shops -- even ones not in a bank that's holding a lot of bad mortgages.
[cob:Special_Report]"That confidence is underwritten by a lot of factors, like will the difficulties in the credit market be sorted out in a reasonable amount of time," Hale said. "That erodes confidence, and that makes executives think of holding back. Confidence is really critical because it causes them to turn to wait-and-see mode."
That sense permeates even other major international markets, many of which are seeing far brighter days than the U.S.
While confidence is much higher in emerging markets than the U.S., they are also aware of weak results in the U.S. and Europe, and the global impact of a North American downturn could have an impact on emerging markets.
That's one of the reasons why the hot trend of 2008 is ensuring whatever a business buys has a return on investment (ROI) of a year, at most.
"The most agile companies have recrafted that message exactly in that direction," Hale said. "Right now what sells is a ROI year or ideally less. In an environment where people are increasingly risk averse, anything that reduces risk is goodness. And any message that says you will get a return tomorrow will sell."