Gartner cuts IT spending growth forecast

Gartner cuts IT spending growth forecast

Bangalore: Research firm Gartner on Thursday lowered its worldwide information technology (IT) spending growth forecast to a 3.7% increase over 2010, down from 4.6% projected earlier, largely because of the European economic crisis.

“With the euro zone crisis causing uncertainty for both businesses and consumers in western Europe, we have adjusted our forecast, and we expect IT spending in western Europe to decline 0.7% in 2012," Richard Gordon, vice-president, research, Gartner, said in a statement.

All four major technology sectors the firm tracks—computing hardware, enterprise software, IT services, and telecommunications equipment and services—are expected to experience slower spending growth in 2012 than previously forecast.

“Faltering global economic growth, the euro zone crisis and the impact of Thailand’s floods on hard-disk drive (HDD) production have all taken their toll on the outlook for IT spending," Gordon said.

The Thailand floods, which left one-third of the country under water, are having serious implications for businesses worldwide, particularly with computer and storage purchases, the firm’s report said.

“Thailand has been a major hub for hard drive manufacturing, both for finished goods and components," Gordon said. “We estimate the supply of hard drives will be reduced by as much as 25% (and possibly more) during the next six-nine months. Rebuilding the destroyed manufacturing facilities will also take time and the effects of this will continue to ripple throughout 2012 and very likely into 2013."

Although large personal computer (PC) original equipment manufacturers (OEMs) will see fewer problems than others in the industry, no company will be wholly immune to the effects on the HDD supply chain, the firm said.

The shipment forecast for PCs has been reduced, which has affected the short-term outlook for the hardware sector.

Telecom equipment spending is projected to show the strongest growth, with revenue increasing 6.9% in 2012, followed by the enterprise software market, which will grow 6.4%.

Analysts in general, however, say Indian IT vendors will continue to expand market share.

Avendus India equity research, for example, in a report earlier this week, said the “current global business environment poses far lower risk to the Indian IT industry compared with that triggered by the insolvency of several big financial entities in 2008. Earnings forecasts of S&P 500 companies in the US, the major market for Indian IT, have declined by barely 4%, well below the 23.5% erosion in forecasts in 2008. Key US sectors such as financials, manufacturing, energy and utilities are in much better shape today than in 2008".

Avendus expects market share expansion and the “secular trend in IT offshoring" to continue.

“The 2008-2009 recession had seen Indian firms add an estimated 2% to their global market share. This is likely to extend due to their adaptability to evolving conditions and a tilt in the revenue mix towards non-linear pricing models and service lines such as consulting, products and platforms," it said.

Volume growth is likely to be robust, the report said.

“The outlook for 2012 is improved by the likely extension of investments by US companies, opening up of the western European market to offshoring, and further expansion in market share at the expense of global firms," Avendus said.

sridhar.c@livemint.com

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