Gartner predicted as recently as July that worldwide IT spend in 2009 would be six per cent lower than in 2008. This figure looks bad enough, but when broken down further some of the figures look dismal – 16% lower spend on IT hardware particularly.
Steve Pinder, GlassHouse Technologies (UK) principal consultant finds out if this means financial Armageddon for IT suppliers, what are the main reasons for these predictions, and if there is an end in sight.
The economic downturn that almost every market sector experienced has led to IMF predicting that worldwide GDP will show a meagre growth of 0.5% in 2009. The advanced economies fare much worse than this, with the OECD predicting that the economies of the G7 group of nations will contract by 3.7%.
With IT comprising a larger element of GDP for the G7 nations, this contraction can go a long way to explaining some of the reduction in IT spending predicted by Gartner. Further trends in the market, such as the adoption of newer technologies and virtualisation, and the disappearance of many organisations, could account for much of the remainder.
Traditionally hardware performs badly in a downturn relative to other areas of IT, so it's no wonder Gartner predicted spending would be down 16 per cent here. It is much easier for organisations to defer a hardware refresh for a year or so than to walk away from an outsourcing contract or services deal.
Further reasons for such a dramatic reduction in hardware are that IT departments are becoming more aware of utilisation statistics within their estates and beginning to take steps to address this wastage.
As for software spending down 1.6 per cent; it is not always as easy to defer software purchases as it is to defer those for hardware.
Maintenance contracts will still need to be kept up to date on older hardware, and other software may need to be upgraded to ensure that software support from the vendor is not discontinued.
Added to this the virtualisation market has been enjoying a recent surge in activity, allowing organisations to deploy many more virtual servers than hosts physically available. These virtual servers, however all require licences, which may help to explain the lower reduction in spending.
The IT services and telecoms sectors are predicted to also show a decline in spending of 5.6 and 4.6 per cent respectively, which is more in line with the worldwide reduction.
These figures can be largely attributed to the general decline in investment that has been seen in the current recession. As companies cancel or defer projects there is less need to get in services organisations to implement them. Upgrades to telecoms infrastructures are big ticket items that have also been subject to scope reductions or cancellations.
Even though the current economic environment is still pretty bad, there are signs that sentiment and activity are beginning to start an upward trend, with France and Germany officially coming out of recession in Q2 2009, and the US and the UK expected to come out of recession by the end of 2009.
Unfortunately, this is not forecast to herald a return to the boom years, with growth expected to be anaemic for the next couple of years at least.
As IT now plays an important role in almost every growing business, an efficient and agile IT department can go a long way to creating a successful business.
Strategies such as storage tiering, implementing a service provider model for IT, and creating standard operating procedures can dramatically increase the efficiency of IT provision and generate real returns to the business.
These trends have becoming increasingly prevalent in the last year or two as budgets tighten and every ounce of value has had to be extracted from budgets: those organisations that continue to operate and implement such practices will begin to accelerate away from the laggards that continue with their outdated practices.