IT spending jitters from US

3 Nov 2006

Conflicting forecasts on IT spending in the US could signal an impending drop in growth in the IT industry there, new research from IDC has suggested.

A metrics study by IDC FutureScan finds IT buyers expecting to grow their IT spending by 7.5pc in the next 12 months while Wall Street analysts are forecasting even higher growth in vendor revenues.

Meanwhile, buyer expectations, vendor revenue forecasts and macroeconomic indicators have all been stable for at least the last three months.

“Deep inside the data, however, are some ominous signs,” said IDC’s chief research officer John Gantz. “Our historical research shows that the tightest economic correlation to IT spending growth is corporate profit growth. Unfortunately, according to the economists polled by Consensus Economics Inc last month, US profit growth is expected to fall from 19pc in 2006 to 4pc in 2007. This can’t be good news.”

IDC’s own forecasts for US IT spending over the next 12 months, to be released later today, have it coming in at just over 6pc.

“This may not seem like a lot of difference,” noted Gantz, “but one and a half percent lower growth takes US$7 billion out of the US IT market in 2007.”

The other macroeconomic indicators are mixed, notes Gantz. While the stock market is going up, housing prices are down. While unemployment is relative low, job growth is nonexistent. While oil prices have dropped, one of the main reasons is a slowing economy. And so on.

According to a survey published in September, routine infrastructure upgrades have diminished as a primary focus for IT departments (to below 30pc of respondents), while implementing new applications, upgrades to existing enterprise applications, new web sites, and new initiatives around security and compliance have are now a priority for more than 50pc of respondents. These new initiatives could propel IT spending growth even if the US economy goes south.

IDC’s FutureScan is a set of market metrics that measure supply and demand in the IT industry based on leading indicators and customer surveys. Values reflect expectations of future growth, with an index value of 1000 indicating zero growth and each additional 10 points representing roughly 1pc of expected growth or contraction.

Buyer Intent reflects market demand for IT products and services over the next 12 months. The November 2006 index value was 1075, down from September’s 1078. The Market Indicators number combines input from economic and IT industry revenue forecasts and was 1066 in November, up from 1063 in October.

By John Kennedy