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Tech sector spending hits rock bottom

Analyst expects recovery next year

The tech industry might finally be hitting rock bottom, according to Forrester Research.

The analyst forecasts global IT spending to decline by nearly 11 percent in 2009 before vendors and end-user organisations begin to see some signs of recovery later this year and early next.

Forrester Research adjusted its global outlook for IT purchasing in 2009 down again from the 3 percent decrease the firm previously predicted in March. Specifically in the US, the drop in tech purchases will be down 5.1 percent, a further decline from the 3.1 percent the research group forecast for the country earlier this year. The primary reason for the shrinking US forecast is the "ghastly" first quarter and "likely similarly poor results in Q2", according to Forrester.

"The biggest factor bringing the tech market down is the breakdown of the financial systems [which both caused the recession and is exacerbating it]," wrote Andrew Bartels, Forrester Research vice president and principal analyst, in the report US and Global IT Market Outlook: Q2 2009.

"US businesses have been hoarding cash and cutting capital investment, with IT capital investment getting caught in the pullback."

That pullback is reducing global spend across all categories of IT, Forrester predicts. For example, the research firm expects purchases of computer equipment to be down by 13.5 percent and a 12.4 percent decline in communications equipment buying. Software spending is anticipated to drop by 8.2 percent, and IT consulting and outsourcing services will be about 8.6 percent lower, Forrester says.

Yet the dismal outlook for 2009 is causing Forrester analysts to be cautiously optimistic for 2010.

"We think businesses and governments overreacted to the US and global recessions - in part because of fears that a broken financial system meant normal lending was not available - by cutting back too much on capital investment in Q4 2008, Q1 2009 and Q2 2009; they will restore tech purchasing levels as they realise the recession is not as deep or as long lasting as they feared," Bartels wrote.

"However, the weak results in the first half of 2009 also mean that the market will hit bottom sooner, setting a low base from which positive year-over-year growth will start to occur in Q4 2009 and into 2010."

Network World


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