RealTime IT News

IT Sector Braces For Spending Slowdown

The crisis hitting the financial industry is expected to result in slashed IT spending, predicted Robert Iati, TABB Group partner and a global head of the consulting firm, in a report just released.

Securities industry IT spending in North America will fall from $21.9 billion this year to $17.9 billion in 2009, Iati predicted. This is a 14.7 percent compound annual growth rate (CAGR) decrease.

Iati also predicted that Lehman Brothers, which sold its core capital markets businesses to Barclays Bank for $1.75 billion two weeks ago, will hack down IT spending from $2.5 billion this year to about $1 billion next year.

The Bank of America (BofA) purchase of Merrill Lynch two weeks ago for $50 billion is expected to hit IT vendors, Iata said. "There is a clearly identifiable synergy between Merrill and BofA, which should manifest itself in IT, as well as other business areas," he explained.

The merger will force "a global reduction of staff and systems by at least $1.5 billion to $2 billion," Iati predicted, adding that BofA's culture is "far more conservative" than Merrill Lynch's, and this will drive "a less aggressive plan for technology spending."

Iata also predicted that the remaining investment banks will be cutting their IT budgets by another two to three percent.

The survey results dovetail with a spending survey published earlier in September before the current credit crisis worsened.

Paul Carton, director of research at the ChangeWave Alliance, which has 15,000 members from leading companies across industry sectors in the United States reported that tightening credit was making business more difficult.

ChangeWave Research, which surveys the members of the ChangeWave Alliance, every quarter, had previously reported that 29 percent of members said their companies would cut or stop IT spending in the fourth quarter of the year.

The ChangeWave survey, conducted online between August 26 and September 4, found that 25 percent of respondents said it is harder for their companies to borrow money now than it was in the previous quarter, and the situation "has got worse," Carton said.

The survey's results also show that 35 percent of respondents expect third quarter sales to come in below plan, and 23 percent expect fourth quarter sales to come in below plan. "This is not just the temporary hysteria on Capital Hill about what's happening on Wall Street, it's about real companies," Carton said.

Much of this was feared by analysts. Only last week, analyst Thomas Curlin, of RBC Capital Markets, slashed more than a dozen IT vendors' earning estimates for next year in the enterprise software and storage systems markets.

But it's the Tabb Group latest predictions on IT spending that have hit a nerve today, a company official said. "Robert [Iati] pulled this together from his personal data files when the crisis stuck; it's not in any of our predictions," TABB Group spokesperson Martin Rabkin told InternetNews.com. "Since then, he's been inundated with calls because it just was so timely."