In-Depth

IT Spending: From Boom to Bust

A recent about-face from market watcher IDC on the IT spending front highlights the still-fragile state of the IT recovery

• By Stephen Swoyer
• 04/11/2006

A recent about-face from market watcher International Data Corp. (IDC) on the IT spending front highlights the still-fragile state of the IT recovery.

Last month, IDC’s FutureScan tracker for IT spending went through the roof, indicative—IDC said—of increasing bullishness among IT buyers. (FutureScan uses leading indicators and customer surveys to measure industry-wide supply and demand). At the time, however, IDC cautioned that its March Futurescan IT spending projections—which exceeded 11 percent—were anomalous.

And so they were. IDC last week published its April FutureScan results, which found that IT spending expectations have gone from bullish to bearish. All in all, executive survey respondents pared their budget growth expectations back to just under 5 percent, IDC researchers say.

“The respondents in this month's poll were as bearish as last month’s were bullish,” said IDC chief research officer John Gantz, in a statement. “A few companies are even expecting to cut their budgets in the next twelve months, which dragged the average down.”

The April Buyer Intent indicator—although depressed—was closer to the FutureScan tracker’s nine-month rolling average, Gantz pointed out. “As we said last month, we just didn’t see a corresponding euphoria in the macroeconomic picture. Mind you, the picture is not bad—as long as real estate holds up and inflation doesn’t drive interest rates up too much higher—but it wasn't the climate for double-digit IT spending growth,” he commented.

IDC’s own 12-month IT spending forecast—which is based on customer buying sentiment as well as IT supplier capacity, channel and pricing dynamics, demographics, regulatory change, and a host of other market forces—is under 6 percent, or about halfway between the March and April FutureScan metrics.

“We think the sudden reversal of expectations was only partly the result of cooling thoughts about the future. The rest was a result of statistical variability in the sample polled as we indicated it might be last month," said Gantz.

That might be the case, but IDC’s FutureScan tracker has been anything but consistent—on a month-to-month basis, at least—over the last 12 months. March’s high of 11.17 percent growth in IT spending was presaged by the robust IT spending expectations (nearly 8 percent) of February. January’s FutureScan tracker, on the other hand, projected less than 5 percent growth—a sharp dip from December (when IT spending once again was projected to grow at an 8 percent clip). October and November, finally, were true bearish months: IT spending expectations barely reached 3 percent in both FutureScan surveys.

To some extent, said IDC’s Gantz, the variability of the FutureScan tracker (in the March and April period, at least) can best be explained by its dependence on a single metric—namely, customer buying intentions. The larger lesson is that the 12 month variability of IDC’s FutureScan tracker might reflect the lingering uncertainty of business executives.