A ‘prolonged’ recession would impact IT industry

The on-going recession would mean several quarters of declines in IT purchases…Software and IT services vendors will start to feel the pinch.

Forrester Research, an independent research firm has outlined an IT spending scenario for a long and deep recession for technology companies. According to this latest Forrester scenario, “A prolonged recession would mean several quarters of declines in IT purchases, not just two or three quarters with little or no growth in late 2008 and first half 2009.” This is the first time Forrester has outlined the possibility that the economic crisis could spark a short-term contraction in IT spending as opposed to a slowdown in growth.

The latest Forrester report offering this scenario - What The Financial Crisis Means To The Tech Market, by Andrew Bartels (VP & Principal Analyst, Forrester Research), states that on a full year 2009 basis, a sustained recession could lead to annual US IT spending growth of 2-3% and global IT spending growth of 3-4%. Says Bartels, “This is just a scenario as an acute financial crisis has hit not only the US but also countries in Europe and Asia.”

In his Sept’08 review of the US IT market, Bartels had predicted a distinct slowdown in growth for US business and government purchases of technology goods and services due to an assumed recession starting in the third quarter. Elaborates Bartels, “We continue to estimate global IT spending growth in 2009 being 7-8%, and we are still sticking to our forecast of a sharp decline in growth – instead of a contraction – for US tech purchases. Why? Our tech market forecast already presumes the recession that is actually happening… Still, with the financial crisis now spreading around the world, risks have grown that the US and other major countries will experience a longer and deeper recession than we had expected.

This scenario will help technology vendors to be prepared, and to mould their strategy, according to the economic environment.” He further adds, “The Software and IT services vendors will anyways – with or without the said scenario – start to feel the pain though sales of these products and services have so far avoided much slowdown in 2008. They will be hit hard in the next three quarters. Still, "hit hard" is relative — vendors in these categories will have on average 3% to 5% growth instead of the 9% to 12% growth they've seen earlier in 2008.” Stating that the rules for technology vendors’ success have changed, Bartels recommends, especially to the US based vendors, to refocus on the US market as it (US market) is likely to recover from a global slowdown sooner and stronger than other markets.