Goldman Sachs Lowers IT Spending Projections

According to an IT Spending Survey published by the investment firm Monday, overall software and hardware spending is expected to experience a bump to as high as 9 percent during the fourth quarter.

However, overall IT spending in 2002 appears to have softened since the firm's last survey two months ago, and next year is looking even less rosy than previously forecast.

Earlier his year, Goldman Sachs had estimated that 2003 spending plans would be up in the 6 percent to 7 percent range and then downgraded that 3 percent to 5 percent growth. Based on its latest survey of IT managers, which was released Monday, Goldman Sachs revised its outlook down again to between 2 percent and 3 percent growth.

While vendors and resellers should see a slight rebound following the Sept. 11 anniversary, fueled by holiday spending and end-of-year budget surpluses, the outlook is dim for the first few quarters of 2003, the firm said.

"An early read on 2003, IT spending shows only nominal growth. As an IT spending recovery should lag a broader economic recovery, we would not expect to see normal IT spending until 2004," the report states. "Our IT managers nominal growth outlook for 2003 is significantly lower than current [Wall Street estimates, showing 9 percent revenues growth for enterprise IT vendors in 2003. [Wall Street estimates for 2003 are probably still too optimistic and will likely need to come down."

On the positive side, the investment firm identified seven key areas that are expected to receive the greatest increases in spending over the next 12 months. Those include security software, security hardware, data networking equipment, wireless LAN equipment, storage software, Windows 2000 and Windows XP desktop software, and midrange storage arrays.

The big losers in 2003--those areas expected to get the least cash infusion--include mainframes, supply chain management software, videoconferencing equipment, Unix and NT servers, and systems integration/professional services industries.

While the 2003 outlook is not encouraging, some solution providers are looking forward to the expected bump in end-of-year spending, partly stimulated by new federal tax incentives this year that reward capital spending.

"Between Christmas and New Year's, you'll see a flurry of buying [of software and hardware that takes place," said Oli Thordarson, president and CEO of Alvaka Networks, noting that corporations will enjoy substantial tax benefits for buying prepackaged software for the 2002 tax year. "It'll pump up capital spending," Thordarson said.

In the meantime, he and others are "milking along the old stuff and making it work for customers," Thordarson said.