Tech sector will see further pain: Forrester

IT purchases in the US is expected to drop sharply, with growth rates slipping to 2 and 4 per cent from fourth quarter 2008 to second quarter of 2009, says Forrester Research. The report suggests that, 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.

“On a full year 2009 basis, a sustained recession could lead to annual US IT spending growth of 2-3 per cent and global IT spending growth of 3-4 per cent. This is just a scenario as an acute financial crisis has hit not only the US but also countries in Europe and Asia,” said Andrew Bartels, VP & Principal Analyst, Forrester Research.

The report titled-- What The Financial Crisis Means To The Tech Market--notes that the Software and IT services vendors will anyways – with or without the said scenario – start to feel the pain. They will be hit hard in the next three quarters. Vendors in these categories will have on average 3 to 5 per cent growth instead of the 9 to 12 per cent growth they have seen earlier in 2008.

Computer and communications equipment vendors will bear of the brunt of IT cost-cutting, said the report. As CIOs have been delaying and deferring buying PCs, servers, and storage devices.

However, Bartels is hopeful that the current government intervention will help tide the situation. “While the risk of a protracted global financial meltdown is increasing, we believe that intervention by the governments and central banks of the major economies will keep that from happening,” he adds further.

The biggest change in the outlook is the spreading weakness to Asia Pacific and the BRIC countries (Brazil, Russia, India, and China), which many have seen as an offsetting source of strength for the global economy and the tech market.

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 is likely to recover from a global slowdown sooner and stronger than other markets. The European economies, as Forrester had expected, will go into recession — pushing IT demand in these markets down as well.

Among the Asian countries; China and Brazil will escape the worst of the global slowdown but will still see slower growth. Russia will slip into recession. India will barely avoid one, and other emerging markets will be even worse.