Wall Street Beat: IT Spending Forecast to Rise in 2011
Despite ongoing worries about the strength of the U.S. recovery, sovereign debt in Europe and inflation in various parts of the world, global IT spending is due to increase this year, according to Forrester Research and Gartner.
IT purchases will rise 7.1 percent this year compared with 2010, to US$1.69 trillion, according to Forrester. Gartner, which unlike Forrester includes telecommunications in its forecast, puts global growth at $3.6 trillion in 2011, a 5.1 percent increase from 2010.
After a strong 2010, the sustained spending growth, fueled especially by enterprise software and mobile-device purchases, bodes well for IT vendors.
Even though most IT bellwethers last year easily outperformed 2009 quarterly results, confidence in the technology sector wavered in mid-2010 as fears of a double-dip recession took hold. Concerns about anemic job growth and continuing mortgage defaults in the U.S., and the specter of sovereign debt default in countries including Greece, Spain and Ireland, depressed the share values of tech companies on exchanges in the third quarter.
Starting in September, a string of strong, in some cases record, financial results from vendors including Microsoft, Oracle, and IBM helped renew confidence, leading to a technology-led rally in the markets. Share values of computer companies on the Nasdaq, for example, are now on average about 21 percent higher than they were a year ago.
The macroeconomic concerns of 2010 remain, but to a large degree, they have dissipated. "The fact that Democrats and Republicans reached agreement on tax cuts and an additional stimulus has gone a long way toward reducing concerns about a double-dip recession," said Forrester analyst Andrew Bartels. Forrester will be putting out its new Global Tech Industry Outlook next week.
The 7.1 percent rise in global IT spending predicted by Forrester is slightly below its estimate of a 7.2 percent rise in spending in 2010. But Bartels pointed out that the 2011 figure is, in a sense, more impressive because it comes on top of a larger spending base.
The implosion of Lehman Brothers in September 2008 sparked a virtual collapse of the financial sector, which in turn depressed spending in all sectors, including tech, in 2009.
IT spending in 2011 will bring tech back to pre-recession levels, and more. "Global spending in 2010 brought us slightly behind 2008," Bartels said. "2011 will clearly put us above 2008."
More importantly, Bartels notes, tech has resumed what Forrester considers an 8-year boom cycle that the recession covered up. Forrester analysts believe that over the past 60 years, the tech market has gone through eight-year cycles -- eight years in which the tech sector grows at twice the level of the general economy, followed by eight years during which the IT sector matches general economic growth. The period 1992-2000 was followed by an eight-year period of slower growth during which companies digested, for example, the ERP systems put in place in the 1990s.
Now, enterprises are intent on absorbing business analytics and cloud technology that makes them more responsive to client needs and better able to manage their supply lines. In fact, companies such as Tibco, Informatica and Pega Systems -- which focus on data integration and business process management software -- weathered the 2009 downturn much better than did other tech vendors, in some cases racking up steady year-over-year gains even during the depths of the recession.
In Gartner's analysis, the telecom equipment market is poised for the strongest growth this year, driven in part by purchases of mobile devices, with global spending in that sector forecast to grow 9.1 percent, to $465 billion. Like Forrester, Gartner foresees enterprise software sales growth accelerating while computing hardware spending growth slows somewhat.
Gartner put enterprise software sales growth for 2011 at 7.5 percent, rising to $253.7 billion dollars. That compares with 6.1 percent growth in 2010. Hardware growth will slow from an 8.9 percent increase in 2010 to a 7.5 percent increase this year, reaching $391.3 billion, according to Gartner.
However, Gartner, like Forrester, sounded a note of caution about 2011. "While the global economic situation is improving, the recovery is slow and hampered by a sluggish growth outlook in the important mature economies of the U.S. and Western Europe," said Richard Gordon, research vice president at Gartner, in a statement issued Thursday.
As always, IT spending -- and general confidence in the technology sector -- are linked to the macroeconomy. On Friday, for example, the tech-heavy Nasdaq fell 13 percent, closing at 2696, as data showed U.S. jobs growth last month was not as strong as expected.