IT Poised for Year-End Rally

The free fall in the IT sector may be nearing an end, according to Forrester.

While the decline is not yet over, spending should begin to improve as the year wears on, culminating in the beginning of a recovery in the fourth quarter, according to a report by Forrester Vice President and Principal Analyst Andrew Bartels.

The U.S. technology market is “more than halfway” through its fall, says Bartels, chased by global markets suffering from worsening economic conditions abroad, as well the relatively strong position of the dollar versus many other currencies.

Forrester cut earlier 2009 growth forecasts as a result of first quarter results that saw spending decline by 13.5 percent in the U.S. It now expects 2009 spending to drop by 5 percent in the U.S. and 11 percent globally.

IT spending was unnaturally suppressed by governments and businesses overreacting to the economy and reining in costs more drastically than might otherwise have been prudent, according to the report.

US to Lead World in Recovery

However, that makes additional room for a strong recovery, Bartels maintains, with growth of 4.2 percent in the fourth quarter of 2009 and 13.9 percent in the first three months of 2010.

“The U.S., for all of its weaknesses, is looking to be one of the stronger geographies,” Bartels told the E-Commerce Times.

The U.S. appears to be having a milder recession than the rest of the world, he noted, and its economy is likely to lead the world out of recession.

As that happens, tech spending will rebound strongly because of U.S. businesses’ reliance on technology, Bartels predicted.

“If you’ve got that kind of tech-intensiveness, you’ve got to keep spending, or otherwise you collapse,” he said.

Other Opinions

Not everyone is projecting the beginning of recovery in 2009.

In a June 24 note to investors, Fitch Ratings reiterated its negative outlook on IT distributors, the big wholesale firms that provide hardware and software solutions to IT solutions providers.

“Fitch believes that while the rate of decline could moderate from levels the industry experienced in 1Q09, double-digit year-over-year sales declines will continue into the second half of 2009,” Fitch analysts wrote in their report.

Those losses will soften as the year goes on, but won’t transform into a recovery.

“We don’t see that happening until 2010, if then,” Melissa L. Link-Cohen, a director with Fitch, told the E-Commerce Times.

Also, corporate chief information officers surveyed for a Gartner study released June 8 indicated they did not expect a recovery to begin until 2010, sometime between the first and third quarters.

Renegotiating vendor contracts and reducing in-house IT staffing were the primary cost-savings channels, according to Gartner.

Worst Case

There’s a caveat in the Forrester report: If the financial sector does not improve and stimulus plans globally do not revive the economy, Bartels says, then technology purchases in the U.S. could decline by as much as 8 percent this year, with another slide of 3 percent to 4 percent in 2010.

Regardless, while declines are still playing out, now is the time for IT vendors to begin focusing on renewed sales and marketing efforts, advises Bartels, and to find ways to get in on the ground floor of companies’ upcoming interest in technologies that will help them grow — not merely save money.

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