An uncertain economy is likely to negatively impact IT spending next year, especially within large enterprises, according to a new report from Computer Economics.
The report, "2008 IT Spending Outlook: Anemic Growth," predicts that 16 percent of companies with annual revenues of more than $750 million expect cuts in their IT budgets. Moreover, 33 percent of large organizations indicated that their 2007 IT spending levels will be less than budgeted – exceeding the 22 percent who say their actual spending will exceed this year's budget, according to the report's author, Computer Economics President Frank Scavo.
"We're not yet predicting [a major slowdown in IT spending],” Scavo told SCMagazineUS.com. "But we think this means that IT executives realize that spending increases depend on economic conditions, and there are signs of trouble in the overall business climate.”
Schavo noted that Computer Economics' June 2007 report entitled "IT Spending, Staffing and Technology Trends" indicated that IT executives expected their budgets to increase five percent in 2007; the latest study shows they expect a 2.5 percent overall increase for 2008.
"This shows a slight trend in the composite sample toward a pullback in IT spending levels this year," Scavo said.
Increases, or decreases, in IT spending levels next year will depend primarily on the overall health of the economy, Scavo explained. The rapidly weakening housing sector and credit market, risk of inflation and a weak dollar are all likely to affect IT spending levels.
The housing and credit crunch are already softening consumer spending, and inflationary trends are likely to prevent the Federal Reserve from lowering interest rates - likely hindering economic growth, Scavo said.
"The weak dollar often provides a temporary boost to the U.S. export market, in the long run it makes goods more expensive to U.S. consumers and businesses, again, negatively impacting IT spending," Scavo said.
The report comes just days after Cisco Systems revealed that its customers have "squeezed" IT spending, resulting in a dramatic drop in sales of the company's switching products. Cisco reported significant declines within financial companies, which are key players in the worsening economic conditions mentioned by Scavo.
"I think IT managers leaned a lesson earlier in the decade in terms of what IT spending can look like, and they have very conservative expectations going into next year," Scavo said. "If economic conditions continue to worsen, we could see further cutbacks in IT spending growth next year. Again, I don't want to overstate this, because much depends on the economic outlook, and there's a lot of nervousness out there now."