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IDC Reduces Forecasts For Global IT Spending

A few weeks ago, when EMC's President and Chief Executive Officer Joe Tucci first stated that IT spending was on the decline, company officials stressed that he was referring, of course, to his own business. Those sentiments were reiterated Wednesday morning when the data storage giant confirmed that profits are plummeting because he believes "IT spending may shrink on a year-to-year basis for the first time in decades."

But analysts at Framingham, Mass.-based International Data Corp. (IDC) believe that Tucci's comments may be a bit of hyperbole and not characteristic of the overall IT sector.

"We're seeing a contraction in some areas," said Kevin White, analyst at IDC. However, overall IT spending is still projected to increase by 8.6 percent in 2001. While the latest projections are lower than 9 percent estimated during the March period, analysts noted that it still represents growth.

"Current forecasts do not point to a worldwide slowdown on the same scale as North America. While there is undoubtedly a decline in the growth of spending in 2001 compared to 2000, this is expected to be less severe in international markets than the U.S. slowdown," said Stephen Minton, program manager for IDC's Worldwide IT Markets and Strategies program.

Much of the decline is attributed to the recessionary conditions in the U.S. Domestic IT spending traditionally makes up around 45 percent of global activity. Projections for the U.S. market now calls for growth of 6.7 percent in 2001, compared with previous estimates of 7.1 percent.

IT spending growth in Asia/Pacific will be a relatively subdued 8 percent in 2001; spending in Latin America, Eastern Europe, and Middle East/Africa will increase 11 percent, 12 percent, and 15 percent, respectively, in 2001.

IT spending has been particularly hard hit by economic woes because over 80 percent of the activity has traditionally come from the enterprise with a relatively small percentage coming from consumers, which until now have accounted for much of the expansion in others sectors such as consumer non-durables, energy or healthcare.

Not only do companies now spend less but they make every attempt to hold onto their hard-earned dollars prolonging the decision process to commit new capital and taking longer deliveries to wait out the stagnant economy.

"In hardware, we expect to see a slight contraction," White said. The market for desktop PCs, servers and storages is projected to shrink 0.2 percent in 2001, IDC projected.

But what has helped to cushion the blow is the resilient market for IT services -- as evidenced by IBM, which has avoided the curse of pre-announcing weaker results thanks largely to its IBM Global Services division.

According to IDC, the worldwide market for IT services grew a solid 11 percent in 2000 to reach $395 billion. In 2001, because of the slowing U.S. economy, annual growth will be slightly below 11 percent. However, going forward, the compound annual growth rate is projected at 12 percent through 2005.

"The downturn in the economy will affect each segment of the overall IT services industry differently. Some segments, like outsourcing, will experience a short-term activity spike. Others, such as consulting, will experience a brief setback," said Ned May, senior analyst with IDC's Worldwide Services research program.