IT Spending Rises Despite Tough Economic Times
- By Stephen Swoyer
- August 26, 2008
Last week, market watcher Gartner Inc. issued a report in which it projected
that IT spending should eclipse $3.4 trillion this year. That's a year-over-year
growth rate of 8 percent.
That may seem at odds with another
recent Gartner survey, this time of CIOs, that suggested a slowdown in IT
hiring is possible -- not what you'd expect when IT spending is rising.
Gartner principals insist that ongoing economic uncertainty doesn't seem to
have adversely impacted IT spending.
"The U.S.-led economic downturn shows no sign of causing a recession in
IT spending," said Jim Tully, vice president and distinguished analyst
at Gartner, in a statement. "In subsequent years we will see reduced growth,
but the fundamentals remain strong. Emerging regions, replacement of obsolete
systems and some technology shifts are driving growth."
There's a caveat, of course: One reason IT spending seems so strong is because
it's measured in dollars, a currency that has undergone a period of protracted
decline relative to others. According to Gartner, that helps to account for
much of the "growth" measured by its survey. On an adjusted basis
-- i.e., measured in terms of "constant currency" -- IT spending is
growing at about 4.5 percent.
Aside from its surprising spending projections, the Gartner report does contain
a few other twists. For example, researchers say it looks like we're transitioning
away from traditional IT leasing or buying models toward a services-based model.
"Organizations are switching from company-owned hardware and software
assets to per-use service-based models. This will impact the industry in various
ways," Tully said. "The projected shift to cloud computing, for example,
will result in dramatic growth in IT products in some areas and in significant
reductions in other areas. In general, assets will be utilized with greater
efficiency, and we are assuming that the overall effect on market growth will
be neutral. We also recognize that there is considerable upside potential for
The two biggest IT budget categories are software (which is poised to grow
by fully 10 percent in 2008) and IT services (with an estimated 9.4 percent
growth). This isn't surprising, according to Gartner, which concluded that the
IT services sector actually benefits from ongoing innovation in software technology
-- i.e., new software typically requires labor-intensive services to implement.
"Most companies updated their software systems during the period 1997
through 2001, so we are in the middle of an upgrade cycle that should extend
past the end of this decade," said Joanne Correia, managing vice president
at Gartner, in a release.
"However, the replacement of systems does not automatically equate to
new software market growth," she continued, citing the growth of Software-as-a-Service
(SaaS), cloud computing, SOA, Web 2.0 and open source software as particularly
disruptive technologies. "Many of these factors are impacting market growth
as enterprises replace assets with per-use services."
According to Gartner, most of today's IT spending gets funneled toward services
rather than discrete products. It's a trend that's only going to get more pronounced
"Spending in IT services is being supported by two main factors,"
said Kathryn Hale, research vice president at Gartner, in a statement. "Businesses
are investing in improvements to internal processes aimed at reducing costs,
while often maintaining some of the prior interest in innovation. The second
factor is that globalization allows IT services providers to mitigate the risk
of weakening demand by operating in more markets."
On the hardware side, sales of PCs are fueling most of the growth. Currently,
PC revenues account for about 60 percent of total hardware spending. What's
surprising, according to Gartner, is that PC sales should continue to soar --
in spite of disruptive technologies such as virtualization and Web 2.0 -- with
no let-down in sight.
"The market growth outside of the U.S. and the effects of the weak dollar
are major factors in growth in U.S. dollar terms. In addition to regional shifts,
a strong shift to mobile PCs is occurring," Tully said.
Stephen Swoyer is a Nashville, TN-based freelance journalist who writes about technology.