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Forrester: Worst May Be Over for IT Market

The fourth quarter of 2008 and the first half of 2009 may have set the bar so low that the only way out is up.

• By Herb Torrens
• August 01, 2009

IT purchasing has been so bad recently that things have got to be looking up.

That's the optimistic part of a Forrester Research Inc. report published last month that chronicles new lows in global and U.S. IT spending patterns. The upshot of the report, which is called "U.S. and Global IT Market Outlook: Q2 2009," is that across-the-board purchasing of IT goods and services will improve late this year.

"The dramatic decline in tech purchases during the past three quarters has really set the stage for an upturn, and in fact it has been so bad, that it's good," says Andrew Bartels, the report's author. "The fourth quarter of 2008 and the first two quarters this year have created a very low base from which the market can make a significant rebound."

Slow Recovery
Businesses have been stretching the life of PCs for various reasons, including dissatisfaction with Microsoft's Windows Vista operating system, explains Bartels, who is vice president and principal analyst at Forrester. However, time changes everything. Now, with economic conditions improving, an aging PC inventory and the new Windows 7 operating system in the wings, companies are going to rev up their PC capital expenditures, he notes.

The lack of access to capital has shut out spending plans at many companies and currency fluctuations have added to the general uncertainty, according to the report. Overall purchases of IT goods and services will decline by nearly 11 percent in 2009. The spending outlook for the U.S. IT market will decline by 5.1 percent, year over year.

Forrester's previous forecast had underestimated the spending decline in 2009, projecting just a 3 percent decrease globally and a 3.1 percent drop in the U.S. IT market.

The report expects declines in all sectors of the tech market, except for outsourcing. In 2009, outsourcing will rise by 2 percent.

Forrester predicts an 11 percent decrease in communications spending, a 10 percent drop in computer equipment purchases, a modest 3 percent decline in software purchases and a 2 percent decline in IT consulting services.

Positive Outlook
Bartels expects moderate spending declines in the third quarter compared with last year's third quarter. However, he predicts that spending will pick up in the fourth quarter.

"We believe that many companies overreacted to what they thought was the coming of the next Great Depression," Bartels says. "Now, it's the middle of the year and things are not great, but certainly not as bad as some expected."

A recovery in IT spending will happen in 2010, the report predicts. It will be broadly based across all sectors of the IT market.