US business and government purchases of IT goods and services will decrease by 3.1 percent in 2009, compared with the 1.6 percent annual increase previously projected by Forrester Research, Inc. (Nasdaq: FORR). With the US economy dropping at an annual rate of 6.3 percent in Q4 2008 and most professional economic forecasters reducing their predictions for 2009 US real GDP growth, Forrester has revised its forecast for technology spending in the US to reflect these changes. Forrester expects growth in IT investment will resume in Q4 2009 and gather strength in 2010.
“In many ways, the biggest factor affecting the tech market is not the recession but the breakdown of the financial system,” said Andrew Bartels, Forrester Research vice president and principal analyst. “The credit crunch is still causing companies to dramatically cut back on all forms of capital investment, including many IT goods and services, and this will affect 2009 revenues for most IT vendors.”
Forrester uses several metrics to determine the health and size of the IT market on a quarterly basis. The data in the new Forrester forecast report focuses on IT purchasing — how much computer and communications equipment, software, IT consulting and integration services, and IT outsourcing businesses and governments buy from technology vendors. It is one of the most important metrics for evaluating the health of technology vendors.
2009 US IT Spending Outlook By Sector
The new Forrester forecast report makes the following predictions:
- Computer equipment will fall even more in 2009. Forrester expects that US business and government purchases of computer equipment will drop by 6.8 percent in 2009, on top of a 4 percent decline in 2008. However, growth is expected to bounce back in 2010 to 7 percent.
- Communications equipment demand will shift from 2008 growth to a big cut in 2009. A mixture of enterprise demand for videoconferencing and mobile technologies and telco demand for 3G wireless and broadband equipment kept purchases growing by 3.7 percent in 2008. Both factors will erode in 2009, leading to a 7.8 percent decline, but growth will revive modestly in 2010 to 4.8 percent.
- Software purchases will decline slightly in 2009, with license revenues falling. Since about half of software purchases each year are maintenance fees and subscription fees that grow at relatively constant rates, the flat growth of total software purchases means that license revenues will continue to fall in 2009. The picture will improve in 2010, with growth of 6.3 percent.
- IT consulting and systems integration services will slip in 2009. Cutbacks in the project portfolio of most companies will lead to a decline of 2 percent in 2009 for IT consulting and systems integration services. The outlook for 2010 remains positive, with 7.4 percent growth expected in 2010.
- IT outsourcing growth will remain moderate in 2009 and 2010. IT outsourcing turned out to be weak in 2008, with 2.8 percent growth as economic uncertainty froze potential clients, increased competition and smaller-scale projects cut prices, and the recession caused prospects to wait to see if prices would get even lower. These same forces will continue through the first half of 2009, with revenues starting to improve in the second half of 2009 and in 2010. Growth in 2009 will be small but positive at 2.1 percent, improving to 6.8 percent in 2010.
“There is a light at the end of the tunnel — demand has been delayed but not cancelled,” said Bartels. “Growth will come back strong once the recession and tight credit conditions start to ease, so IT Vendor Strategy professionals should get prepared by investing in research and development and focusing on building the proof points, case studies, and success stories about how their technology solutions have helped businesses.”