IT Spending Getting Squeezed

Posted by Mark Brousseau

An article in yesterday's Austin American-Statesman says the fourth quarter could be even more disappointing than technology vendors already had expected. Businesses are cutting back spending by putting off equipment purchases and upgrades and laying off workers. Even software, considered a safer bet because it helps companies automate costly steps, is also likely to take a hit, the Statesman noted.

"It's inevitable that all technology companies, with varying degrees, will be running into the same thing," Stephen Minton, an analyst for research firm IDC, told the newspaper. "The reaction of businesses to the economic crisis is to stop spending money."

Technology makes up a big chunk of corporate spending. Of the total amount of money that U.S. businesses spend on fixed investments, which includes offices and factories, about 28 percent goes to computer and communications equipment and software, according to Commerce Department data analyzed by Bartels.

IDC expects very little growth in overall tech spending for the rest of the year and through most of 2009. Spending in the U.S. and Europe probably will be roughly flat, while emerging markets should continue to grow.

"One thing we learned in 2001, a lot of people in software said the recession won't have an effect," Minton told the newspaper. They were wrong. "What businesses do when a recession starts is they stop spending altogether."

The bright spots in the sector: Information-technology services and outsourcing — helping companies manage their computing — tend to be the least affected in a downturn, he added.

It is clear that a recession will hurt the tech sector, but things don't figure to be as bad as they were during the dot-com bust, which helped spark the last recession. This time around, there is no tech bubble to burst. So although corporate customers are temporarily putting projects on hold and delaying upgrades to weather the economic storm, Minton said that overall, "businesses are still optimistic about technology."

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