“This is a caution flag for IT vendors; 2007 will be a challenging environment,” said Andrew Bartels, Vice President, Forrester Research. “Sales in the US - the largest single technology buying market in the world - will be hard to come by as CIOs reduce or delay IT purchases. The single most important variable impacting future technology spending worldwide is the state of the US economy.”
One year ago, Forrester projected that 2007 would see little or no growth in US IT purchases due to an anticipated slowdown in the US economy. However, it now appears that the US economic downturn will be milder than anticipated. As a result, Forrester’s forecast for US IT spending growth is up from the previous estimate of two percent. Still, the slowdown will be enough to impact major US trading partners in Asia Pacific and the rest of the Americas.
Forrester’s global IT spending and purchases forecast makes a distinction between IT purchases (purchases from vendors of IT goods like computers or software and of IT services like systems integration or outsourcing), and IT spending on an operating budget basis (the depreciated value of capital purchases in IT goods, plus IT services purchases, plus IT staff costs). Technology vendors are most concerned with IT purchases, which represent revenues for them; CIOs looking to benchmark their IT spending on an income-statement basis are focused on IT spending.
Near-term, the health of the US technology industry appears more robust. The quarterly Forrester/ITAA US Tech Sector Index posted a 3.2 point gain in Q3 to stand at 126.4, the highest the index has been in more than five years. The strong showing was the result of a surge in US vendor profits and CIO confidence (two of the 11 measures that make up the index). However, an overall weakening of the economy throughout 2006 has caused a decline in Forrester’s outlook for fourth-quarter business purchases in IT.