FORRESTER DOWNGRADES 2008 SPENDING ESTIMATES

Chennai
The Hindu Business Line | The Economic Times | 

Forrester Research, in its latest report has said that it is downgrading its forecast for 2008 IT spending (including operational budgets for equipment, IT consulting and outsourcing services as well as IT salaries) from 6.4 percent to 5.2 percent while its forecast for IT equipment (including capital purchases) spending is down from 7.8 percent to a growth of 4.8 percent.

In other words, it is saying that IT spending – be it on goods, products or services would grow, but at lower than earlier estimated rates.

Interestingly, the report said that within the IT spending category, IT consulting and integration services would be sluggish, growing at 3 percent, compared with an earlier estimate of 9.4 percent. Meanwhile, IT outsourcing and IT salary & benefits remained stable, compared to estimates again, at 5.8 percent and 5.7 percent, respectively.

Top Indian vendors depend more on outsourcing services for revenues than they do on consulting or integration.

The report said that IT outsourcing has shifted from large mega deals, “which have been declining in numbers to smaller, more focused deals, a move that has slowed revenue growth. The growing presence of Indian vendors such as Infosys, TCS and Wipro and a build up by US and European IT vendors of their own offshore resources have driven price points down, which has also limited growth in outsource revenues.”

Software investments are less impacted, with 2008 growth estimates revised from 9.6 percent to a “still strong” 8.1 percent. This is an increase from 7 percent in 2007.

Service oriented architecture, the report said, continues to be the main catalyst for new investment in software, both for infrastructure and for applications.

Overall, IT spending would grow slower at 5.2 percent in 2008, compared with 5.7 percent growth in 2007 versus a 5.4 percent growth in 2006.

The research report, prepared by Andrew Bartels of Forrester, said that the revisions were due to two reasons: one, bigger and longer-lasting impacts from the bursting of the housing bubble; and two, the ratcheting downward of 2008 forecasts by economists at the Federal Reserve, OECD as well as by those of the National Association for Business Economists.

While 2008 could see a repeat of 2007, with its weak start and then improved IT spending, the good news is that Forrester expects a significant pick up in IT investment and spending in 2009, “as companies invest in new technologies that can deliver improved business results.”

The report says that the US may slowdown but would avoid a recession in 2008.

Factors such as higher gasoline prices affecting purchase of non-durable goods; end of cheap credit affecting durable goods; housing sector declining further and tighter credit cutting business investment in buildings and equipment.

If the above sectors see sudden reversals, accompanied by either the collapse of the dollar or persistence of core inflation leading to quick interest rate hikes, then the US economy would see no growth or even see recession, the report said.

“IT purchases would then be flat at best, and IT spending … would grow at 2-4 percent, at best.”