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Analysts: Companies Cutting IT Spending

NEW YORK – Many large companies, especially those in the financial services, utilities and telecommunications industries, have cut their technology budgets this year because of the economic slowdown.

In a report released Tuesday, Forrester Research Inc. found that 43 percent of large U.S. and European businesses it surveyed have cut their overall spending on technology products and services in 2008. Some companies, meanwhile, have put discretionary spending on hold and others are planning to negotiate lower rates for information-technology services.

The research firm did not change its annual technology spending forecast, but it is reviewing it. In its most recent forecast, in February, Forrester had said it expects tech spending to grow 2.8 percent this year. That marked a significant downward revision from a December 2007 forecast of 4.6 percent growth.

Tuesday’s report, said Forrester vice president and principal analyst John McCarthy, is “really just a snapshot” of companies’ spending sentiments.

In general, corporate technology buyers were less optimistic than they were in the last such survey, in October 2007, just before the credit market tightened and the housing market “really fell apart,” McCarthy said.

Forrester’s survey found that the effects of the economic downturn varied by geography and by sector. U.S. companies were more likely to cut their budgets than those in Europe, for example. And while companies in finance, utilities and telecom are tightening their belts considerably, those in media and entertainment are spending more. McCarthy noted that such companies are going through a “fundamental upheaval” that requires they spend on technology regardless of how the economy is doing.

In the survey, taken in late May and early June of nearly 950 IT managers at companies in North America and Europe, nearly half of the U.S. respondents said they have already cut their IT spending budgets, compared with 38 percent of those in Canada and 28 percent of companies in Germany. And 70 percent of respondents said they expect to negotiate lower rates with IT service suppliers.

“Clearly we are entering a period of very judicious IT spending,” McCarthy said. But, he added, this isn’t the “outright slash and burn” of technology budgets seen in 2002. Last time around, the fallout was from the a bust in the tech sector itself, while this time it’s the financial, real estate and auto industries that are leading the downturn.

“We see continued growth in service spending overall,” McCarthy said.

In August, research firm Gartner Inc. said it expects worldwide IT spending to exceed $3.4 trillion in 2008, an 8 percent increase from 2007. But much of this growth, analysts said, was based on the decline of the U.S. dollar. Otherwise, Gartner forecast IT spending to grow about 4.5 percent.

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