KUHN CAPITAL Tuesday, October 17, 2017
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IT Downturn Ahead?

10/31/05

Countering the usual optimism of the IT professional forecasting class, Forrester Research sees middling 7% growth in IT spending for 2006 and an anemic 2% growth rate in 2007.

Forrester’s opinion is based partly on macro-economic trends and partly on the current paucity of new “must have” technologies. More specifically, the research house claims that IT demand is driven by a combination of GDP increases and the practical value of novel applications or systems, much as the Internet spawned years of activity starting in about 1998.

On GDP growth, Forrester believes that rising interest rates and energy prices, along with a flattened housing market will depress consumer spending, thereby crimping new technology investment by suppliers.

Regarding the persuasiveness of emerging technologies, Forrester argues that VoIP and “server virtualization” are already proving their mettle but will not gain mainstream traction for several more years.

Breaking down its forecasts by market, Forrester sees the following spending increases between now and 2010:
• Continuing price/performance improvements will drive 9% average annual increases in computer equipment sales, a bright spot.
• Software spending will stabilize at about 6% per annum with relatively few new product releases planned during the period.
• IT services growth will decline to 1% per year by 2008, then rebound in 2009 as clients take on new technologies.
• Coming off its recent highs, IT outsourcing demand will drop to 6% per year during the period 2007 – 2009 as the number of available prospects declines.

We think Forrester’s prognostications sound right enough, and they’re further fuel for what we see as a grand round of consolidation as the IT business matures. Look for M&A to continue its present barn-burner pace unabated.


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