Recession's Grip Loosens, But IT Budgets Still Feel Squeeze

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Today I am sharing an excerpt from an actual discussion between a colleague and me that occurred several months ago when I was writing a post on IT spending. Colleague (after hearing much sighing from me): "So how's the post on spending going?" Me:" There's only so many ways you can say, 'It still sucks.'" If the same conversation happened today, I think I'd change my response to "There's only so many ways you can say 'Nobody really knows for sure.'"


Though most industry analysts and vendors themselves appear to be cautiously optimistic about spending increases in the coming year, some surveys of IT executives present a more muddled message.


Goldman Sachs is predicting a flat overall spending outlook, but a slight uptick in capital IT spending. In reporting earnings for its fiscal third quarter, the CEO of Florida-based technology distributor Tech Data Corp., told analysts it was "clear that overall IT spending is beginning to show signs of improving outlook for the first time in four quarters." Calling for a 2 percent to 3 percent in 2010 spending from its U.S. clients, the CFO of Indian services provider Wipro said, "It continues to look good."


Thirty-five percent of respondents to a recent SearchCIO.com survey said their companies will cut IT expenditures in 2010, with spending falling 7 percent. Forty-four percent of respondents expect to make selective new investments, to help drive business growth or boost efficiency through increased automation, while the remainder of respondents will focus on maintaining existing service levels.


In a list of projects in which more than a quarter of companies plan to invest, the big winners appear to be technologies tied to cost reduction and/or mission-critical operations. The top five: server virtualization, cited by 46 percent of respondents; disaster recovery/business continuity (42 percent); data protection (42 percent); network-based security (41 percent); and storage virtualization (34 percent).


In a story on IT spending published earlier this month, IT Business Edge's Susan Hall cited research predicting a long-overdue refresh of IT hardware, flat staffing levels and other lukewarm signs of recovery. (She called it "careful growth.") She quoted Richard Gordon, Gartner research VP:

We're not looking for huge rebound in growth next year. But we will see some because many of the projects have been delayed and they can't be delayed indefinitely. but it's going to be 2011, 2012 before we see a return to more normal growth in IT spending.

It's more of the same in McKinsey's fourth-annual survey on IT spending and strategy. (Free registration required.) Like Susan's sources and the SearchCIO.com survey respondents, the folks McKinsey queried are cutting costs through efficiency improvements.


Two-thirds of the respondents say they plan to undertake structural cost reductions in the next 12 to 18 months. Among popular tactics: improvements in application development and maintenance, cited by 28 percent of respondents; increased infrastructure consolidation or virtualization (16 percent); and renegotiating vendor contracts (14 percent). More than 60 percent of respondents believe IT operating expenses will remain flat or decline.


There's a slightly brighter picture for new projects, with 46 percent of McKinsey's respondents predicting investments.