IT Spending Estimates Take Another Dive

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IT spending is going to be slower than even the sluggish predictions have been suggesting, according to a new report from Goldman Sachs & Co., a New York-based investment research firm.

But while industry analysts say corporations are holding tight to their wallets, they are
spending on technologies that promise to save them money in the long run.

”We’re definitely seeing ups and downs,” says Dan Kusnetzky, vice president of system
software research at IDC, a Framingham, Mass.-based analyst firm. ”The only high-tech
companies doing well are the ones focused on lowering costs for their customers. In good
times, people need computers to deal with volume. In bad times, they need computers to deal with cost savings.”

But the sluggish economy, terrorism threats and high-profile corporate legal wranglings have dragged down the high-tech sector, according to Goldman Sachs.

”We believe it likely that the anemic economic growth expected for 2003 will require
estimate reductions for the broader software sector,” says a Goldman Sachs spokesman in a written statement. ”Long-term growth rates for technology companies, in general, likely need to be revised downward, given the protracted slowdown in IT spending.”

The report notes that IT spending for 2002 remains flat with last year. For 2003, the
investment research firm predicts only a 3% to 5% growth, with much of that increased
spending coming in the second half of the year. While pent up IT need is building, slack
corporate profits just don’t allow for spending.

In this cautious atmosphere, mobile and wireless infrastructure companies, for example, are suffering, says Kusnetzky. ”They’ve been doing pilot projects but it’s just not key to the business,” he explains. ”Let the pilot roll on but they’re not investing in it now.”

System management and asset management technologies, on the other hand, are holding their
own, he adds.

”Where people invest their money is based on the market,” says Kusnetzky, who adds that
CIOs are buying clustering technologies so they don’t have to buy the giant servers. ”Now they are focused on making their systems more secure and lowering their cost of administration and hardware. The clustering market grew by 14% between 2000 and 2001 and it looks like that is continuing this year.”

Judith Hurwitz, a principal at CycleBridge Technologies LLC, an analyst firm based in
Newton, Mass., says this is a bad time to be a vendor trying to sell an innovative product.

”People are only buying very pragmatic stuff,” says Hurwitz. ”It’s stuff that aint fancy but you need it to get the job done. The return on investment has to be obvious. The cost savings have to be right there in front of your nose.”

Anyone putting together IT spending budgets for next year is likely looking to keep things pretty flat, adds Hurwitz, who says she doesn’t see any dramatic upswing in the economy in the near future.

”They’ll keep things flat and if things turn around, they’ll up the budge then,” she says. ”They’re not making any assumptions that the economy will dramatically turn around. When it does turn around, I think it will happen very, very slowly. So slowly that we won’t even realize it’s happening.”