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IT Sector Braces For Spending Slowdown

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The crisis hitting the financial industry is expected to result in slashed IT spending, predicted Robert Iati, TABB Group partner and a global head of the consulting firm, in a report just released.

Securities industry IT spending in North America will fall from $21.9 billion this year to $17.9 billion in 1009, Iati predicted. This is a 14.7 percent compound annual growth rate (CAGR) decrease.

Iati also predicted that Lehman Brothers, which sold its core capital markets businesses to Barclays Bank for $1.75 billion two weeks ago, will hack down IT spending from $2.5 billion this year to about $1 billion next year.

The Bank of America (BofA) purchase of Merrill Lynch two weeks ago for $50 billion is expected to hit IT vendors, Iata said. “There is a clearly identifiable synergy between Merrill and BofA, which should manifest itself in IT, as well as other business areas,” he explained.

The merger will force “a global reduction of staff and systems by at least $1.5 billion to $2 billion,” Iati predicted, adding that BofA’s culture is “far more conservative” than Merrill Lynch’s, and this will drive “a less aggressive plan for technology spending.”

Iata also predicted that the remaining investment banks will be cutting their IT budgets by another two to three percent.

The survey results dovetail with a spending survey published earlier in September before the current credit crisis worsened.

Paul Carton, director of research at the ChangeWave Alliance, which has 15,000 members from leading companies across industry sectors in the United States reported that tightening credit was making business more difficult.

ChangeWave Research, which surveys the members of the ChangeWave Alliance, every quarter, had previously reported that 29 percent of members said their companies would cut or stop IT spending in the fourth quarter of the year.

The ChangeWave survey, conducted online between August 26 and September 4, found that 25 percent of respondents said it is harder for their companies to borrow money now than it was in the previous quarter, and the situation “has got worse,” Carton said.

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