VAR500: IT Spending Outlook Dims

The lackluster economy has forced corporate IT departments to reassess their investment plans. According to recent research from the Gartner Group, total IT spending as a percentage of gross revenue is projected to be 3.88 percent in 2003, down from 4.43 percent in 2001.

"The decline in IT spending is largely the result of the

global recession; however, many enterprises that spent enormous amounts of money on large-scale IT projects during the '90s became more introspective and skeptical about investing in IT following the failure of dot coms and the lack of perceived business value from IT investments," says Barbara Gomolski, research director for Gartner.

As shrinking budgets delay demand for IT products and services, today's leading solution providers, who were confident the economy was headed for an upswing earlier this year, now recognize the need to restore some momentum.

According to a Q3 2002 survey of 80 executives from the VARBusiness 500, our annual ranking of North America's largest solution providers, VARs appear to have curbed their enthusiasm for a financial recovery in 2002. Latest results indicate a decline in confidence as scarcely 15 percent of respondents report their Q3 2002 companies' sales were ahead of expectations. Compare that with the more than one in four respondents (27 percent) who, in an earlier wave of the same survey conducted by Bernett Research Services, stated their revenue was ahead of expectations in Q1 2002. Moreover, less than half of the executives surveyed (45 percent) expect their average customer's IT investments to advance this quarter, compared with an overwhelming 70 percent when we ran the same survey earlier in the year.

As further indication of the adverse effects of a weakened economy, a majority of VARBusiness 500 solution providers (58 percent) now believe their company's operating margins will remain flat this quarter. On the contrary, a majority of respondents (50 percent) deemed their companies' operating margins would improve in the second quarter, according to our Q1 2002 survey.

Amid the rocking, VARBusiness 500 solution providers are repositioning themselves for recovery. Our Q3 2002 results indicate they expect sales in several promising technology areas to exceed expectations for that quarter. Technologies of interest include security and privacy, wireless and mobile, storage and database management, application-integration software and middleware and hardware platforms (see "What's Still Hot?" left). Largely attributable to the slowdown, we saw a substantial drop in spending intentions for all technologies since this year's first quarter.

And, while 2002 is not likely to see a turning point for IT spending, nearly two-thirds of the VARBusiness 500 executives surveyed (65 percent) say they plan to increase hiring in 2003. Could this be a sign of impending labor market conditions, pointing to an economic stimulus ahead? Let me know your thoughts at bmarkowi@cmp.com. For additional survey results, see www.varbusiness.com/vb500.

Tweet

   

More Channel Programs